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 WSFS Financial Corporation (WSFS - 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, WSFS Financial has a trailing twelve months PE ratio of 10.94, 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 17.32. If we focus on the long-term PE trend, WSFS Financial’s current PE level puts it below its midpoint over the past five years.
Further, the stock’s PE also compares pretty favorably with the Zacks - Finance sector’s trailing twelve months PE ratio, which stands at 13.9. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that WSFS Financial has a forward PE ratio (price relative to this year’s earnings) of 11.14, 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.
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, WSFS Financial’s P/CF ratio of 16.66 is higher than the Zacks Finance- Savings & Loan industry average of 126.7, which indicates that the stock is somewhat overvalued in this respect.
If anything, this suggests some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, WSFS Financial 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, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for WSFS Financial is just 0.93, a level that is far lower than the industry average of 1.79. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate.
What About the Stock Overall?
Though WSFS 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 D and a Momentum Score of B. This gives WSFS 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 encouraging. The current quarter has seen one upward revision with no downward movement in the past sixty days. For the full year, the estimate has seen two upward revision 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 increased 2.3% in the past two months, while the full year estimate inched up 0.6%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
WSFS Financial Corporation Price and Consensus
Even though WSFS Financial has a stable estimates trend, the stock has just a Zacks Rank #3 (Hold), which is why we are looking for in-line performance from the company in the near term.
WSFS Financial 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 33% of more than 250 industries) and Zacks Rank #3, supports the company overall.
However, over the past two years, the Zacks Finance- Savings & Loan industry has clearly underperformed the market at large, as you can see below:
So, value investors might want to wait for analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
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