Will CECO Environmental Be a Suitable Pick 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 CECO Environmental Corp. CECE 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, CECO Environmental has a trailing twelve months PE ratio of 10.72, as you can see in the chart below:

This level actually compares favorably with the market at large, as the PE for the S&P 500 stands at about 20.36. If we focus on the stock’s long-term PE trend, the current level puts CECO Environmental’s PE ratio below its midpoint over the past five years.

Further, the stock’s PE also compares pretty favorably with the Zacks classified Pollution Control Equipment/Services industry’s trailing twelve months PE ratio, which stands at 26.48. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that CECE has a forward PE ratio (price relative to this year’s earnings) of 11.39, so it is fair to expect an increase in the company’s share price in the near future.

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, CECO Environmental’s P/CF ratio of 9.33 is lower than the Zacks classified Pollution Control Equipment/Services industry average of 12.98, which indicates that the stock is somewhat undervalued in this respect.

Broad Value Outlook

In aggregate, CECE 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 CECE a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the Price/Sales ratio for CECE is just 0.88, a level that is lower than the industry average of 1.08. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better.

What About the Stock Overall?

Though CECO Environmental 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 ‘A’ and a Momentum score of ‘C’. This gives CECE 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 discouraging. The current quarter has seen one estimates go higher in the past 60 days and two lower, while the full year estimate has seen one upward revisions and three downward revision in the same time frame.

As a result, the current quarter consensus estimate has dipped by 14.3% in the past two months, while the full year estimate has dropped by about 1.1%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

CECO Environmental Corp. Price and Consensus

CECO Environmental Corp. Price and Consensus | CECO Environmental Corp. Quote

This negative trend is why the stock has just a Zacks Rank #3 (Hold) despite strong value metrics and why we are looking for in-line performance from the company in the near term.

Bottom Line

CECE is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (Bottom 41% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall.

So, value investors might want to wait for estimates and broader factors to turn favorable in this name first, but once that happen, this stock could be a compelling pick.

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