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Can Value Investors Consider FS KKR Capital (FSK) Stock Now?

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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 FS KKR Capital Corp. (FSK - 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:

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, FS KKR Capital has a trailing twelve months PE ratio of 7.42, 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 17.11. If we focus on the long-term PE trend, FS KKR Capital’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 13.75. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.


 
We should also point out that FS KKR Capital has a forward PE ratio (price relative to this year’s earnings) of 8.03, 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.

PEG Ratio

While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate). The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.

FS KKR Capital’s PEG ratio stands at 2.73, compared with the Zacks Finance - SBIC & Commercial industry average of 3.69. This suggests decent undervalued trading relative to its earnings growth potential right now.


 
If anything, this suggests some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

In aggregate, FS KKR Capital currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. Clearly, the stock is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though FSK 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 C. This gives FSK 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 mixed at best. The current year has seen no upward revision with two downward movement in the past sixty days. For the next 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 year consensus estimate has decreased 1.3% in the past two months, while the next year estimate rose 2.7%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

FS Investment Corporation Price and Consensus

This somewhat mixed trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.

Bottom Line

FS KKR Capital 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 39% of more than 250 industries) and Zacks Rank #3, supports the company overall.

However, over the past two years, the industry has clearly underperformed the market at large, as you can see below:



So, value investors might want to wait for industry trends, estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.

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