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 Sanofi (SNY - 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, Sanofi has a trailing twelve months PE ratio of 13.5, 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 stands at about 17.6. If we focus on the long-term PE trend, Sanofi’s current PE level puts it below its midpoint of 13.9 over the past five years.
Further, the stock’s PE also compares favorably with the Zacks Medical sector’s trailing twelve months PE ratio, which stands at 20.6. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Sanofi has a forward PE ratio (price relative to this year’s earnings) of 13.5, which is in line with the current level.
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, Sanofi has a P/S ratio of about 2.7. This is significantly lower than the S&P 500 average, which comes in at 3.2 right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, Sanofi currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Sanofi a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the P/CF ratio for Sanofi came in at 8.3, which is lower than the industry average of 11.5. Clearly, Sanofi is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Sanofi 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 C. This gives SNY a Zacks VGM score — or its overarching fundamental grade — of B. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been mixed. The current year has seen one estimate go lower in the past sixty days compared to one upward revision, while the next year estimate has seen one downward revision compared to no movement in the opposite direction in the same time period.
This has had just a small impact on the consensus estimate though as the current year consensus estimate has inched up by 0.3% in the past two months, while the next year estimate has inched down by 0.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This somewhat mixed trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.
Sanofi is an inspired choice for value investors, as it is hard to beat its incredible line up of statistics on this front.
However, with a sluggish industry rank (among bottom 42% of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks Large Cap Pharmaceuticals industry has underperformed the market at large, as you can see below:
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.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?
From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.
This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.
See Stocks Today >>