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 Air Lease Corporation AL 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, Air Lease Corporation has a trailing twelve months PE ratio of 14.4, 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 22.3. If we focus on the stock’s long-term PE trend, the current level puts Air Lease Corporation’s current PE ratio slightly above its midpoint (which is 13.8) over the past five years.
Further, the stock’s PE also compares favorably with the industry’s trailing twelve months PE ratio, which stands at 20.5. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Air Lease Corporation has a forward PE ratio (price relative to this year’s earnings) of just 12.3, so it is fair to say that a slightly more value-oriented path may be ahead for Air Lease Corporation’s stock in the near term too.
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, Air Lease Corporation’s P/CF ratio of 6.2 is slightly lower than the industry average of 8.2, which indicates that the stock is somewhat undervalued in this respect.
Broad Value Outlook
In aggregate, Air Lease Corporation currently has a Value Style Score of A, putting it into the top 20% of all stocks we cover from this look. This makes AL a solid choice for value investors.
What About the Stock Overall?
Though Air Lease Corporation 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 D and a Momentum score of C. This gives AL a 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 and one lower, while the full-year 2017 estimate has seen three upward and one downward revisions in the same time period.
This has had a noticeable impact on the consensus estimate, as the current quarter consensus estimate has fallen about 1.1% in the past two months, while the full-year 2017 estimate has inched up 0.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Air Lease Corporation Price and Consensus
Air Lease Corporation Price and Consensus | Air Lease Corporation Quote
Despite this somewhat mixed trend, the stock has a Zacks Rank #2 (Buy) on the back of its strong value metrics and this is why we are expecting above-average performance from the company in the near-term.
Air Lease Corporation 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 20% out of more than 250 industries) and a strong Zacks Rank, the company deserves attention right now. However, over the past one year, the sector has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for estimates and analyst sentiment to turn favorable in this name first, but once that happen, this stock could be a compelling pick.
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