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 Allegiant Travel Company (ALGT - 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, Allegiant Travel Company has a trailing twelve months PE ratio of 12.65, 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 19.61. If we focus on the long-term PE trend, Allegiant Travel Company’s current PE level puts it below its midpoint of 12.99 over the past five years, with the number having risen rapidly over the past few months. However, the current level stands significantly below the highs for the stock, suggesting that it can be a solid entry point.
Moreover, the stock’s PE also compares favorably with the Zacks Transportation Market sector’s trailing twelve months PE ratio, which stands at 15.67. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Allegiant Travel Company has a forward PE ratio (price relative to this year’s earnings) of 11.87, so it is fair to say that a slightly more value-oriented path may be ahead for Allegiant Travel Company’s stock in the near term too.
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Allegiant Travel Company has a P/S ratio of about 1.54. This is much lower than the S&P 500 average, which comes in at 3.39 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, Allegiant Travel Company currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Allegiant Travel Company a solid choice for value investors.
For example, the PEG ratio for Allegiant Travel Company is just 0.45, a level that is marginally lower than the industry average of 0.62. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, ALGT is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Allegiant Travel Company 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 Momentum Score of D. This gives ALGT 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 year has seen six upward revisions in the past sixty days compared to no downward revision, while the full year 2020 estimate has also seen six upward revisions compared to no downward revision in the same time period.
The current year consensus estimate increased 4.7% in the past two months, whereas the full year 2020 estimate rose 9.9%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Allegiant Travel Company Price and Consensus
Notably, the stock with a solid earnings surprise history and long-term EPS growth rate of 26.3% has a Zacks Rank #1 (Strong Buy), which is why we are looking for outperformance from the company in the near term.
Allegiant Travel Company is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, the company carries a robust industry rank (among top 24% of more than 250 industries).
So, value investors might want to wait for broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.
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