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 Cone Midstream Partners (CNXM - 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, Cone Midstream Partners has a trailing twelve months PE ratio of 7.65, 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 17.94. If we focus on the long- term PE trend, Cone Midstream Partners’ current PE level puts it below its midpoint of 11.36 over the past three years, with the number having risen rapidly over the past few months. However, the current level stands well below the highs for the stock, suggesting that it can be a solid entry point.
Further, the stock’s PE also compares favorably with the Zacks Oils-Energy Market sector’s trailing twelve months PE ratio, which stands at 14.3 At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Cone Midstream Partners has a forward PE ratio (price relative to this year’s earnings) of 7.69, so it is fair to expect an increase in the company’s share price in the near future.
An often, overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, Cone Midstream Partners’ P/CF ratio of 5.08 is lower than the Zacks Oil-Exploration & Production’s industry average of 5.32, which indicates that the stock is somewhat undervalued in this respect.
Broad Value Outlook
In aggregate, Cone Midstream Partners currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Cone Midstream Partners a solid choice for value investors.
For example, the PEG ratio for Cone Midstream Partners is 0.55, a level that is lower than the industry average of 1.33. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, CNXM is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Cone Midstream Partners 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 Momentum Score of F. This gives CNXM 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 disappointing. The current year has seen no upward revisions compared to three downward revision in the past sixty days, whereas the next year estimate had no upward revision compared to two downward revisions in the same time period.
As a result, the current year consensus estimate has declined 4.40% in the past two months, while the next year estimate fell by 1.39%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Cone Midstream Partners LP Price and Consensus
This bearish trend is why the stock has a Zacks Rank #4 (Sell) and why we fear that the company might disappoint in the near term.
Cone Midstream Partners is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a Zacks Rank #4, it is hard to get too excited about this company overall.
Moreover, over the past two years, the broader industry has clearly underperformed the market at large, as you can see below:
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