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 Murphy USA Inc. (MUSA - 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, Murphy USA has a trailing twelve months PE ratio of 15.28, 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 17.63. If we focus on the long-term PE trend, Murphy USA’s current PE level puts it below its midpoint over the past five years.
However, the stock's PE compares unfavorably with the Zacks Oil-Energy sector’s trailing twelve months PE ratio, which stands at 14.41. At the very least, this indicates that the stock is relatively overvalued right now, compared to its peers.
Nonetheless, Murphy USA has a forward PE ratio (price relative to this year’s earnings) of 19.69, which is tad higher than the current level. So, it is fair to expect an increase in the company’s share price in the near term.
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, Murphy USA has a P/S ratio of about 0.19. This is lower than the S&P 500 average, which comes in at 3.17x 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, this suggests some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Murphy USA currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes the stock a solid choice for value investors.
What About the Stock Overall?
Though MUSA 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 A and a Momentum Score of D. This gives MPC 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 disappointing. The current quarter has seen four downward revisions with no upward movement in the past sixty days. For the full year, the estimate has seen four downward revisions in the same time period with no movement in the opposite direction.
This has had an impact on the consensus estimate as the current quarter consensus estimate has plunged roughly 9% in the past two months, while the full year estimate has declined 5.1%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Murphy USA 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.
Murphy USA is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. A strong industry rank (among top 44% of more than 250 industries) further instils our confidence.
However, a Zacks Rank #3 makes it hard to get too excited about this company overall. In fact, over the past two years, the Zacks Oil Refining & Marketing industry has clearly 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.
Radical New Technology Creates $12.3 Trillion Opportunity
Imagine buying Microsoft stock in the early days of personal computers… or Motorola after it released the world’s first cell phone. These technologies changed our lives and created massive profits for investors.
Today, we’re on the brink of the next quantum leap in technology. 7 innovative companies are leading this “4th Industrial Revolution” - and early investors stand to earn the biggest profits.
See the 7 breakthrough stocks now>>