Is Central Valley (CVCY) 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 Central Valley Community Bancorp CVCY 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, Central Valley has a trailing twelve months PE ratio of 14.89, 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 stands at about 21.28. While Central Valley’s current PE level puts it above its midpoint of 13.84 over the past five years, it stands well below the highs for the stock, indicating scope for entry.

     
Further, the stock’s PE compares favorably with the Zacks Finance sector’s trailing twelve months PE ratio, which stands at 16.77. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
 

We should point out that Central Valley has a forward PE ratio (price relative to this year’s earnings) of just 15.46, 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, Central Valley’s P/CF ratio of 9.53 is much lower than the Zacks Banks-West industry average of 15.86, which indicates that the stock is quite undervalued in this respect.

Broad Value Outlook

In aggregate, Central Valley currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Central Valley a solid choice for value investors.

What About the Stock Overall?

Though Central Valley 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 C and a Momentum Score of A. This gives CVCY 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 quite mixed at best. The current quarter estimates have seen one downward revision with no upward revisions in the past sixty days, while the full year estimate has seen one upward and no downward revision.

This has had a mixed impact on the consensus estimate, as the current quarter consensus estimate has dropped by 5.6% in the past two months, while the full year estimate has risen 2.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Central Valley Community Bancorp Price and Consensus
 

Central Valley Community Bancorp Price and Consensus | Central Valley Community Bancorp Quote

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

Bottom Line

Central Valley is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Despite having a Zacks Rank #3, the stock belongs to an industry which is ranked among the Top 39% out of more than 250 Zacks industries, which indicates that broader factors are favorable for the company. Further, over the past two years, the industry has outperformed the broader market, as you can see below:

So, value investors might want to wait for estimates to turn around in this name first, but once that happens, this stock could be a compelling pick.

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