The proven Zacks Rank system focuses on earnings estimates and estimate revisions to find winning stocks. Nevertheless, we know that our readers all have their own perspectives, so we are always looking at the latest trends in value, growth, and momentum to find strong picks.
Looking at the history of these trends, perhaps none is more beloved than value investing. This strategy simply looks to identify companies that are being undervalued by the broader 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.
Magic Software (MGIC - Free Report) is a stock many investors are watching right now. MGIC is currently holding a Zacks Rank of #2 (Buy) and a Value grade of A. The stock has a Forward P/E ratio of 14.59. This compares to its industry's average Forward P/E of 26.47. Over the past 52 weeks, MGIC's Forward P/E has been as high as 16.22 and as low as 12.06, with a median of 13.99.
Value investors also use the P/S ratio. The P/S ratio is is calculated as price divided by sales. Some people prefer this metric because sales are harder to manipulate on an income statement. This means it could be a truer performance indicator. MGIC has a P/S ratio of 1.54. This compares to its industry's average P/S of 4.38.
Finally, investors will want to recognize that MGIC has a P/CF ratio of 13.99. 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. MGIC's P/CF compares to its industry's average P/CF of 18.36. Over the past 52 weeks, MGIC's P/CF has been as high as 14.85 and as low as 11.44, with a median of 12.98.
Value investors will likely look at more than just these metrics, but the above data helps show that Magic Software is likely undervalued currently. And when considering the strength of its earnings outlook, MGIC sticks out at as one of the market's strongest value stocks.