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 Arconic Inc. ARNC 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, Arconic has a trailing twelve months PE ratio of 25.00, as you can see in the chart below:
While this level actually compares unfavorably with the market at large, (as the PE for the S&P 500 stands at about 20.48), Arconic’s current PE level puts it below its midpoint of 26.98 over the past five years. Moreover, the current multiple stands significantly lower than the highs scaled in the last five years, signaling chances of upside movement.
However, the stock’s PE stands above the Zacks classified Basic Materials sector’s trailing twelve months PE ratio, which stands at 21.32. This indicates that the stock is relatively overvalued right now, compared to its peers.
Well, we should point out that Arconic’s forward PE is roughly same as its trailing twelve months value, so we might say that the forward earnings estimates are incorporated in the company’s share price as of now. We define forward PE as current price relative to the Zacks Consensus Estimate for the current fiscal year.
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, Arconic has a P/S ratio of about 0.97. This is way lower than the S&P 500 average, which comes in at 3.10 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.
Broad Value Outlook
In aggregate, Arconic 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 Arconic a solid choice for value investors.
What About the Stock Overall?
While Arconic 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 ARNC a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Notably, the company’s recent earnings estimates have been quite encouraging, as both the current quarter and full year estimates have seen two upward revisions each, in the past sixty days compared to no downward revisions in the same time period.
This has had a meaningful impact on the consensus estimate, as the current quarter consensus estimate has advanced 25% in the past two months, while the full year estimate has increased 19.5%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Arconic Inc. Price and Consensus
Arconic Inc. Price and Consensus | Arconic Inc. Quote
This bullish trend is why the stock boasts a Zacks Rank #2 (Buy) and why we are expecting outperformance from the company in the near term.
Arconic is an inspired choice for value investors, given its decent lineup of statistics on this front. Further, this Zacks Rank #2 stock belongs to an industry which is ranked among the Top 6%, which indicates that broader factors are favorable for the company. Additionally, over the past one year, the Zacks Mining – Non Ferrous industry’s performance has 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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Arconic Inc. (ARNC): Free Stock Analysis Report
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