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 use tried-and-true metrics and fundamental analysis to find companies that they believe are undervalued at their current share price levels.
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 stock to keep an eye on is Virtusa (VRTU - Free Report) . VRTU is currently sporting a Zacks Rank of #1 (Strong Buy), as well as a Value grade of A. The stock has a Forward P/E ratio of 9.03. This compares to its industry's average Forward P/E of 22.88. Over the past 52 weeks, VRTU's Forward P/E has been as high as 23.85 and as low as 9.03, with a median of 15.26.
Another valuation metric that we should highlight is VRTU's P/B ratio of 2.06. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. This company's current P/B looks solid when compared to its industry's average P/B of 3.90. Over the past year, VRTU's P/B has been as high as 4.32 and as low as 2.06, with a median of 3.36.
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. VRTU has a P/S ratio of 0.47. This compares to its industry's average P/S of 0.95.
Value investors will likely look at more than just these metrics, but the above data helps show that Virtusa is likely undervalued currently. And when considering the strength of its earnings outlook, VRTU sticks out at as one of the market's strongest value stocks.