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 Earthstone Energy, Inc. 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:
PE Ratio
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, Earthstone Energy has a trailing twelve months PE ratio of 7.08, as you can see in the chart below:
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This level actually compares favorably with the market at large, as the PE for the S&P 500 stands at about 17.5. If we focus on the long-term PE trend, Earthstone Energy’s current PE level puts it below its midpoint of 8.81 over the past five 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.
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Further, the stock’s PE also compares favorably with the Zacks Oils-Energy Market sector’s trailing twelve months PE ratio, which stands at 14.1. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Earthstone Energy has a forward PE ratio (price relative to this year’s earnings) of 9.81, so it is fair to expect an increase in the company’s share price in the near future.
P/S Ratio
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, Earthstone Energy has a P/S ratio of 1.24. This is much lower than the S&P 500 average, which comes in at 3.14 right now. Also, as we can see in the chart below, this is considerably below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, Earthstone Energy currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Earthstone Energy a solid choice for value investors.
For example, the PEG ratio for Earthstone Energy is 0.33, a level that is lower than the industry average of 0.88. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, ESTE is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Earthstone Energy 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 B and Momentum Score of A. This gives ESTE 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 encouraging. The current quarter has seen three upward revisions in the past sixty days compared to two downward revisions, while the full year estimate has seen four upward revisions compared to three downward revisions in the same time period.
As a result, the current quarter consensus estimate increased 14.3% in the past two months, while the full year estimate increased 5.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Earthstone Energy, Inc. Price and Consensus
Even though Earthstone Energy has a better estimates trend, the stock has just a Zacks Rank #3 (Hold). That is why we are looking for in-line performance from the company in the near term.
Bottom Line
Earthstone Energy 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 #3, 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:
.jpg)
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This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
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Is Earthstone Energy (ESTE) a Solid Pick for Value Investors?
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 Earthstone Energy, Inc. 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:
PE Ratio
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, Earthstone Energy has a trailing twelve months PE ratio of 7.08, 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 17.5. If we focus on the long-term PE trend, Earthstone Energy’s current PE level puts it below its midpoint of 8.81 over the past five 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 14.1. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Earthstone Energy has a forward PE ratio (price relative to this year’s earnings) of 9.81, so it is fair to expect an increase in the company’s share price in the near future.
P/S Ratio
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, Earthstone Energy has a P/S ratio of 1.24. This is much lower than the S&P 500 average, which comes in at 3.14 right now. Also, as we can see in the chart below, this is considerably below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, Earthstone Energy currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Earthstone Energy a solid choice for value investors.
For example, the PEG ratio for Earthstone Energy is 0.33, a level that is lower than the industry average of 0.88. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, ESTE is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Earthstone Energy 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 B and Momentum Score of A. This gives ESTE 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 encouraging. The current quarter has seen three upward revisions in the past sixty days compared to two downward revisions, while the full year estimate has seen four upward revisions compared to three downward revisions in the same time period.
As a result, the current quarter consensus estimate increased 14.3% in the past two months, while the full year estimate increased 5.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Earthstone Energy, Inc. Price and Consensus
Earthstone Energy, Inc. price-consensus-chart | Earthstone Energy, Inc. Quote
Even though Earthstone Energy has a better estimates trend, the stock has just a Zacks Rank #3 (Hold). That is why we are looking for in-line performance from the company in the near term.
Bottom Line
Earthstone Energy 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 #3, 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:
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>