While the proven Zacks Rank places an emphasis on earnings estimates and estimate revisions to find strong stocks, we also know that investors tend to develop their own individual strategies. With this in mind, we are always looking at value, growth, and momentum trends to discover great companies.
Of these, value investing is easily one of the most popular ways to find great stocks in any market environment. Value investors use fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.
Luckily, Zacks has developed its own Style Scores system in an effort to find stocks with specific traits. Value investors will be interested in the system's "Value" category. Stocks with both "A" grades in the Value category and high Zacks Ranks are among the strongest value stocks on the market right now.
One stock to keep an eye on is Builders FirstSource (BLDR - Free Report) . BLDR is currently sporting a Zacks Rank of #2 (Buy), as well as an A grade for Value. The stock is trading with a P/E ratio of 10.93, which compares to its industry's average of 18.33. Over the last 12 months, BLDR's Forward P/E has been as high as 10.93 and as low as 5.62, with a median of 7.77.
Value investors also use the P/S ratio. The P/S ratio is is calculated as price divided by sales. This is a prefered metric because revenue can't really be manipulated, so sales are often a truer performance indicator. BLDR has a P/S ratio of 0.3. This compares to its industry's average P/S of 0.42.
Finally, we should also recognize that BLDR has a P/CF ratio of 7.11. This metric focuses on a firm's operating cash flow and is often used to find stocks that are undervalued based on the strength of their cash outlook. BLDR's current P/CF looks attractive when compared to its industry's average P/CF of 13.05. Over the past year, BLDR's P/CF has been as high as 12 and as low as 4.13, with a median of 5.93.
These are only a few of the key metrics included in Builders FirstSource's strong Value grade, but they help show that the stock is likely undervalued right now. When factoring in the strength of its earnings outlook, BLDR looks like an impressive value stock at the moment.