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.
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 rely on traditional forms of analysis on key valuation metrics to find stocks that they believe are undervalued, leaving room for profits.
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 to watch right now is Select Medical (SEM - Free Report) . SEM is currently holding a Zacks Rank of #1 (Strong Buy) and a Value grade of A.
We should also highlight that SEM has a P/B ratio of 3.49. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. This stock's P/B looks attractive against its industry's average P/B of 3.75. SEM's P/B has been as high as 3.49 and as low as 1.92, with a median of 2.24, over the past year.
Value investors also love the P/S ratio, which is calculated by simply dividing a stock's price with the company's sales. This is a prefered metric because revenue can't really be manipulated, so sales are often a truer performance indicator. SEM has a P/S ratio of 0.58. This compares to its industry's average P/S of 0.6.
Finally, investors will want to recognize that SEM has a P/CF ratio of 8.22. This metric takes into account a company's operating cash flow and can be used to find stocks that are undervalued based on their solid cash outlook. SEM's current P/CF looks attractive when compared to its industry's average P/CF of 14.76. Over the past 52 weeks, SEM's P/CF has been as high as 8.22 and as low as 4.71, with a median of 5.67.
Value investors will likely look at more than just these metrics, but the above data helps show that Select Medical is likely undervalued currently. And when considering the strength of its earnings outlook, SEM sticks out at as one of the market's strongest value stocks.