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 CONE Midstream Partners LP CNNX 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, CONE Midstream Partners has a trailing twelve months PE ratio of 14.50, 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 19.89. If we focus on the long-term PE trend, CONE Midstream Partners’ current PE level puts it above its midpoint over the past five years, with the number having risen rapidly over the past few months.
Meanwhile, the stock’s PE compares favorably with the Zacks classified Oils & Energy sector’s trailing twelve months PE ratio, which stands at 75.33. At the very least, this indicates that the stock is significantly undervalued right now, compared to its peers.
We should also point out that CONE Midstream Partners has a forward PE ratio (price relative to this year’s earnings) of 13.08, so it is fair to say that a slightly more value-oriented path may be ahead for CONE Midstream Partners 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, CONE Midstream Partners’ P/CF ratio of 11.79 is lower than the Zacks classified Oil/Gas Production Pipeline MLP industry average of 13.05, which indicates that the stock is somewhat undervalued in this respect.
Broad Value Outlook
In aggregate, CONE Midstream Partners 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 CONE Midstream Partners a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for CONE Midstream Partners is just 0.88, a level that is far lower than the industry average of 2.55. 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 4.31, which is far better than the industry average of 9.10. Clearly, CNNX is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though CONE Midstream Partners 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 ‘A’. This gives CNNX 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 mostly encouraging. The current quarter has seen three estimates go higher in the past sixty days compared to two lower, while the full year estimate has seen two upward revisions and one downward revision in the same time period.
This has had a favorable impact on the consensus estimate though as the current quarter consensus estimate has risen by 2.7% in the past two months, while the full year estimate has inched higher by 2.6%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
CONE MIDSTREAM Price and Consensus
CONE MIDSTREAM Price and Consensus | CONE MIDSTREAM 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.
CONE Midstream Partners is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Not only does the stock have a Zacks Rank #2 but it also belongs to an industry which is ranked among the Top 28%, which indicates that broader factors are favorable for the company. In fact, over the past one year, the Zacks classified Oil/Gas Production Pipeline MLP industry has clearly 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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