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 HCA Healthcare (HCA - 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, HCA Healthcare has a trailing twelve months PE ratio of 13.2, as you can see in the chart below:
This level actually compares 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, HCA Healthcare’s current PE level puts it slightly below its midpoint of 13.6 over the past five years, with the number remaining stable over the past few months.
Further, the stock’s PE also compares pretty favorably with the Medical Market’s trailing twelve months PE ratio, which stands at 20.6. At the very least, this indicates that the stock is much undervalued right now, compared to its peers.
We should also point out that HCA Healthcare has a forward PE ratio (price relative to this year’s earnings) of 12.6, which is slightly lower than the current level. So, it is fair to say that a slightly more value-oriented path may be ahead for HCA Healthcare 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, HCA Healthcare has a P/S ratio of just 1. This is slightly 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 well below the highs for this stock in particular over the past few years.
If anything, HCA is towards the higher end of its range in the time period from a P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
Broad Value Outlook
In aggregate, HCA Healthcare currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes HCA Healthcare a solid choice for value investors.
What About the Stock Overall?
Though HCA Healthcare 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 Growth and Momentum Scores of A. This gives HCA a Zacks VGM score — or its overarching fundamental grade — of A. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been downbeat. The current quarter has seen one upward revision in the past sixty days compared to seven downward revisions, while the full year estimate has seen three upward and eight downward revisions in the same time period.
This has had a negative impact on the consensus estimate as the current quarter consensus estimate has declined by 2.1% in the past two months, while the full year estimate has inched down by 0.9%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Despite the bearish analyst sentiments, the stock holds a Zacks Rank #3 (Hold). Thus, we are looking for in-line performance from the company in the near term.
HCA Healthcare is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Further, a strong industry rank (among Top 38% of more than 250 industries) instils our confidence.
However, with a Zacks Rank #3 it is hard to get too excited about this company overall. In fact, over the past two years, the broader industry has marginally 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.
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