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 Arrow Electronics, Inc. (ARW - 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, Arrow Electronics has a trailing twelve months PE ratio of 9.61, 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 18.23. If we focus on the long-term PE trend, Arrow Electronics’ current PE level puts it below its midpoint of 10.06, suggesting that the stock is undervalued compared to its historical levels.
Further, the stock’s PE also compares pretty favorably with the Zacks Computer and Technology sector’s trailing twelve months PE ratio, which stands at 20.39. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Arrow Electronics has a forward PE ratio (price relative to this year’s earnings) of just 9.32, so it is fair to say that a slightly more value-oriented path may be ahead for Arrow Electronics 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, Arrow Electronics has a P/S ratio of about 0.25. This is lower than the S&P 500 average, which comes in at 3.32 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.
Broad Value Outlook
In aggregate, Arrow Electronics currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Arrow Electronics 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 Arrow Electronics is 7.27, a level that is lower than the industry average of 7.48.
What About the Stock Overall?
Though Arrow Electronics 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 C and a Momentum Score of F. This gives ARW 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 year has seen one estimate go down with no upward movement in the past sixty days. Further, the next year has seen one downward with no movement in the opposite direction in the same time period.
This has had an impact on the consensus estimate as the current year consensus estimate has inched down 0.33% in the past two months, while the next year estimate has decreased 0.21%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Arrow Electronics, Inc. Price and Consensus
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.
Arrow Electronics is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Although the stock has a strong industry rank (among Top 36% of more than 250 industries), with a Zacks Rank #3 it hard to get too excited about the stock. Further, over the past two years, the Electronics - Parts Distribution industry has clearly underperformed the overall market, as you can see below:
So, value investors might want to wait for the broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.
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