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 Eagle Materials Inc. EXP 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, Eagle Materials has a trailing twelve months PE ratio of 16.21, as you can see in the chart below:
This level also compares favorably with the market at large, as the PE for the S&P 500 stands at about 18.66. Meanwhile, if we focus on the long-term PE trend, Eagle Materials’ current PE level puts it below its midpoint of 20.16 over the past five years.
The stock’s PE also compares favorably with the Construction sector’s trailing twelve months PE ratio, which stands at 16.76. This indicates that the stock is slightly undervalued right now, compared to its peers.
We should also point out Eagle Materials has a forward PE ratio (price relative to this year’s earnings) of 15.29, so it is fair to say that a more value-oriented path is ahead of the stock in the near term.
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, Eagle Materials has a P/S ratio of just 2.49. This is much lower than the S&P 500 average, which comes in at 3.23 right now. Also, as we can see in the chart below, this is somewhat below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, Eagle Materials currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Eagle Materials a solid choice for value investors and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Eagle Materials is just 1.27, a level that is slightly lower than the industry average of 1.45. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate.
What About the Stock Overall?
Though Eagle Materials 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 A and a Momentum Score of D. This gives EXP a Zacks VGM score — or its overarching fundamental grade — of A. (You can read more about the Zacks Style Scores here >>).
Meanwhile, the company’s recent earnings estimates have been downbeat. While the current-quarter estimate has seen two upward and three downward movements, the current-year estimate has seen one upward and four downward movements over the past two months.
This has had a negative effect on the consensus estimate. While the current-quarter consensus has fallen 3.1% over the past two months, the current-year estimate has inched down 0.7%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This somewhat bearish trend is the reason why the stock has a Zacks Rank #3 (Hold) and why we are looking for inline performance from the company in the near term.
Eagle Materials is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Despite a strong industry rank (among top 10% of more than 250 industries), with a Zacks Rank #3 it is hard to get too excited about the stock.
Also, over the past two years, the broader industry has clearly underperformed the market at large, as you can see below:
Hence, value investors might want to wait for Zacks Rank, past industry performance and analyst sentiments to turn around in the name first, but once that happens, the stock is going to be a compelling pick.
Free: Zacks’ Single Best Stock Set to Double
Today you are invited to download our latest Special Report that reveals 5 stocks with the most potential to gain +100% or more in 2020. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.
This pioneering tech ticker had soared to all-time highs and then subsided to a price that is irresistible. Now a pending acquisition could super-charge the company’s drive past competitors in the development of true Artificial Intelligence. The earlier you get in to this stock, the greater your potential gain.
See 5 Stocks Set to Double>>