Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put CBS Corporation (CBS - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, CBS Corporation, popularly known as CBS has a trailing twelve months PE ratio of 9.5, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 compares in at about 17.5. If we focus on the stock’s long-term PE trend, the current level puts CBS’s current PE ratio below its midpoint over the past five years, with the number remaining stable over the past few months.
Further, the stock’s PE also compares favorably with the Zacks Media sector’s trailing twelve months PE ratio, which stands at 23.8. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that CBS has a forward PE ratio (price relative to this year’s earnings) of just 8.8, so it is fair to say that a slightly more value-oriented path may be ahead for CBS stock in the near term too.
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, CBS has a P/S ratio of about 1.3. This is a lower than the S&P 500 average, which comes in at 3.2x right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past one year.
If anything, CBS is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, CBS currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes CBS a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for CBS is just 0.7, a level that is lower than the industry average of 1.2. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, CBS is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though CBS might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of D and a Momentum Score of D. This gives CBS a Zacks VGM score — or its overarching fundamental grade — of C. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been disappointing. The current quarter has seen two estimates go higher in the past sixty days compared to 13 lower. For the full year, estimate has seen 22 down in the same time period, compared to no movement in the opposite direction.
This has had a significant impact on the consensus estimate as the current quarter consensus estimate has plunged 6.6% in the past two months, while the full year estimate has declined 1.6%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
CBS Corporation Price and Consensus
However, with a Zacks Rank #3 it is hard to get too excited about this company overall. So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
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