Is American Axle a Great Stock for Value Investors?
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 American Axle & Manufacturing Holdings, Inc. AXL 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, American Axle has a trailing twelve months PE ratio of 5.79, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 compares in at about 20.18. If we focus on the stock’s long-term PE trend, the current level puts American Axle’s current PE ratio below its midpoint over the past five years, with the number being somewhat stable over the past few months.
Further, the stock’s PE also compares favorably with the Zacks classified Automotive - Original Equipment sector’s trailing twelve months PE ratio, which stands at 13.00. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that American Axle has a forward PE ratio (price relative to this year’s earnings) of just 5.57, so it is fair to say that a slightly more value-oriented path may be ahead for American Axle stock in the near term too.
P/CF Ratio
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, American Axle’s P/CF ratio of 3.41 is lower than the Zacks classified Automotive-Original Equipment industry average of 8.27, which indicates that the stock is somewhat undervalued in this respect.
Broad Value Outlook
In aggregate, American Axle currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes American Axle a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for American Axle is just 0.69, a level that is far lower than the industry average of 1.14. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate.
What About the Stock Overall?
Though American Axlemight 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 ‘C’ and a Momentum score of ‘D’. This gives AXL a Zacks VGM score—or its overarching fundamental grade—of ‘B’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen one estimate go higher in the past sixty days compared to one lower, while the full year estimate has seen four up in the same time period.
This has had just a small impact on the consensus estimate though as the current quarter consensus estimate has risen by 12.3% in the past two months, while the full year estimate has increased 8.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
American Axle & Manufacturing Holdings, Inc. Price and Consensus
American Axle & Manufacturing Holdings, Inc. Price and Consensus | American Axle & Manufacturing Holdings, Inc. Quote
This positive trend signifies bullish analyst sentiment, and its Zacks Rank #2 (Buy) indicates robust fundamentals and expectations of outperformance in the near term.
Bottom Line
American Axleis an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Furthermore, a robust industry rank (among top 11%) and a Zacks Rank #2 instills our confidence on the stock.
In fact, over the past two years, the Zacks Automotive-Original Equipment industry has clearly underperformed the broader market, as you can see below:
Despite the poor past performance of the industry, a good industry rank signals that the stock is likely to benefit from favorable broader factors in the immediate future. Add to this the positive estimate revisions and robust value metrics, and we believe that we have a strong value contender in American Axle.
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American Axle & Manufacturing Holdings, Inc. (AXL): Free Stock Analysis Report
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