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Should Value Investors Buy First American Financial (FAF) Stock?

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Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.

Considering these trends, value investing is clearly one of the most preferred ways to find strong stocks in any type of market. Value investors use a variety of methods, including tried-and-true valuation metrics, to find these stocks.

Zacks has developed the innovative Style Scores system to highlight stocks with specific traits. For example, value investors will be interested in stocks with great grades in the "Value" category. When paired with a high Zacks Rank, "A" grades in the Value category are among the strongest value stocks on the market today.

One company value investors might notice is First American Financial (FAF - Free Report) . FAF is currently sporting a Zacks Rank of #1 (Strong Buy), as well as a Value grade of A. The stock has a Forward P/E ratio of 11.69. This compares to its industry's average Forward P/E of 24.66. Over the past year, FAF's Forward P/E has been as high as 12.27 and as low as 9.21, with a median of 11.08.

FAF is also sporting a PEG ratio of 1.06. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. FAF's industry has an average PEG of 2.94 right now. Within the past year, FAF's PEG has been as high as 1.12 and as low as 0.71, with a median of 0.98.

Value investors also frequently use the P/S ratio. This metric is found by dividing a stock's price with the company's revenue. This is a prefered metric because revenue can't really be manipulated, so sales are often a truer performance indicator. FAF has a P/S ratio of 1.13. This compares to its industry's average P/S of 1.14.

Finally, investors should note that FAF has a P/CF ratio of 9.44. This data point considers a firm's operating cash flow and is frequently used to find companies that are undervalued when considering their solid cash outlook. FAF's P/CF compares to its industry's average P/CF of 14.27. Over the past year, FAF's P/CF has been as high as 10.33 and as low as 6.39, with a median of 9.08.

Value investors will likely look at more than just these metrics, but the above data helps show that First American Financial is likely undervalued currently. And when considering the strength of its earnings outlook, FAF sticks out at as one of the market's strongest value stocks.


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