Is Alliance Holdings a Good Stock for Value Investing?

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 Alliance Holdings GP, L.P. AHGP 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:

PE Ratio

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, Alliance Holdings has a trailing twelve months PE ratio of 9.09, as you can see in the chart below:

This level actually compares pretty favorably with the market at large as well, as the PE for the S&P 500 stands at about 20.36. If we focus on the long term PE trend, Alliance Holdings’ current PE level stands below its midpoint over the past five years, with the number having risen rapidly over the last one year. Meanwhile, the current PE reading is considerably lower than its highs over the last five years (which stands at 17.94). This suggests that the stock is undervalued compared to its historical levels.

In fact, the reason for this recent increase is that over the past few months, the stock’s price has charted a strong growth trajectory while the earnings have declined consistently. Both of these trends have had an inflating effect on the PE ratio. These trends can be clearly seen in the chart below:

Further, the stock’s PE also compares favorably with the Zacks classified Coal industry’s trailing twelve months PE ratio, which stands at 20.64. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that Alliance Holdings has a forward PE ratio (price relative to this year’s earnings) of 10.06, so it is fair to expect an increase in the company’s share price in the near future.

P/S Ratio

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, Alliance Holdings has a P/S ratio of about 0.88. This is way lower than the S&P 500 average, which comes in at 3.09 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.

If anything, AHGP is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

In aggregate, Alliance Holdings currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all the stocks we cover from this look. This makes Alliance Holdings a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the P/CF ratio (another great indicator of value) comes in at 2.07, which is relatively better than the industry average of 2.19. Clearly, AHGP is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Alliance Holdings 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 grade of ‘B’ and a Momentum score of ‘D’. This gives AHGP 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 decidedly bullish. Notably, the current quarter has seen one estimate go higher and none lower in the last sixty days. Notably, the full year estimate has also seen a similar trend.

This has had a significant impact on the consensus estimate as the current quarter consensus estimate has surged by an impressive 80.0% in the last sixty days, while the current year consensus estimate has appreciated by 37.6% over the same time frame.

You can see the consensus estimate trend and recent price action for the stock in the chart below:

Alliance Holdings GP, L.P. Price and Consensus

Alliance Holdings GP, L.P. Price and Consensus | Alliance Holdings GP, L.P. Quote

This bullish trend is why the stock boasts a Zacks Rank #1 (Strong Buy) and why we are expecting outperformance from the company in the near term.

Bottom Line

Alliance Holdings is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Boasting a good industry rank (Top 29% out of more than 250 industries) and a top Zacks Rank, the company deserves attention right now.

In fact, over the past one year, the Zacks Coal industry has clearly outperformed the broader market, as you can see below:

So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.

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