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 Cardinal Health CAH 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, Cardinal Health has a trailing twelve months PE ratio of 10.2, 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 17.7. If we focus on the long-term PE trend, Cardinal Health’ current PE level puts it below its midpoint of 15.3 over the past five years. Moreover, the current level stands below the highs for the stock, suggesting that it can be a solid entry point.
Further, the stock’s PE also compares favorably with the Zacks Medical sector’s trailing twelve months PE ratio, which stands at 20.1. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Cardinal Health has a forward PE ratio (price relative to this year’s earnings) of just 9.8, so it is fair to say that a slightly more value-oriented path may be ahead for Cardinal Health’ stock in the near term too.
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, Cardinal Health has a P/S ratio of just 0.1. This is much lower than the S&P 500 average, which comes in at 3.2 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, Cardinal Health currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Cardinal Health a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Cardinal Health is 1.6, a level that is lower than the industry average of 2.3. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Additionally, its P/CF ratio (another great indicator of value) comes in at 5.9, which is way better than the industry average of 17.4. Clearly, CAH is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Cardinal Health 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 Score of B and Momentum Score of D. This gives CAH 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 mixed at the best. The current quarter has seen one upward revision in the past sixty
days compared to three downward revisions, while the full year estimate has seen six upward and no downward revisions in the same time period.
As a result, the current quarter consensus estimate fell 0.7% in the past two months, while the full year estimate has increased by 1.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Cardinal Health, Inc. Price and Consensus
Cardinal Health, Inc. Price and Consensus | Cardinal Health, Inc. Quote
Notably, the stock with a long-term EPS growth rate of 6.2% has a Zacks Rank #2 (Buy), which is why we are looking for outperformance from the company in the near term.
Cardinal Health is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Furthermore, the Zacks Rank #2 company flaunts a robust industry rank (among the top 23%), which indicates that the broader factors are favorable for the company.
So, value investors might want to delve deeper in this stock as it appears to be a compelling pick.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Cardinal Health, Inc. (CAH) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research