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 BJ’s Restaurants, Inc. BJRI 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, BJ’s Restaurants has a trailing twelve months PE ratio of 20.82. This level compares almost similarly with the market at large, as the PE ratio for the S&P 500 comes in at about 20.48.
If we focus on the long-term trend of the stock the current level puts BJ’s Restaurants’ current PE near its lows. The current PE is well below its median for the term (which stands at 32.05), and the number has been on a downtrend since 2015. Hence, we could infer that the stock is undervalued in this respect, especially in light of its historical trend. Thus, the present level seems to be a suitable entry point for the stock from a PE perspective.
Further, the stock’s PE also compares favorably with the Zacks classified Retail - Restaurants industry’s trailing twelve months PE ratio, which stands at 24.21. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
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, BJ’s Restaurants has a P/S ratio of about 0.92. This is significantly lower than the Zacks categorized Retail – Restaurants industry average, which comes in at 3.37 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.
This clearly suggests some level of undervalued trading for BJRI—at least compared to historical norms.
Broad Value Outlook
In aggregate, BJ’s Restaurants 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 BJ’s Restaurants a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for BJ’s Restaurants is just 1.27, slightly lower than the industry average of 1.67. 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 just 7.18, which is better than the industry average of 9.67. Clearly, BJRI is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though BJ’s Restaurants 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 ‘A’ and a Momentum score of ‘D’. This gives BJRI a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics, and a good VGM score can increase your odds of success. All things considered, BJ’s Restaurants seems to have pretty striking prospects.
Meanwhile, the company’s recent earnings estimates have been trending down lately. The current quarter has seen seven estimates go lower in the past sixty days compared to none lower, while the full year estimate has seen seven downward revisions and one upward revision in the same time period.
This has had a meaningful impact on the consensus estimate as the current quarter consensus estimate has lowered by 32% in the past two months, while the full year estimate has moved south by 8.9%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
BJ's Restaurants, Inc. Price and Consensus
BJ's Restaurants, Inc. Price and Consensus | BJ's Restaurants, Inc. Quote
The combination of these somewhat mixed factors 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.
BJ’s Restaurants is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (Bottom 39% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall.
The restaurant industry has been experiencing low consumption over the last few quarters as consumer discretionary spending in this space has been pretty sluggish. In addition, high labor costs as well as investments in several sales building initiatives and technical upgrades have been weighing on margins.
Notably, the industry has widely underperformed the broader market over the last year, as you can see below:
Despite such negative broader factors, the fact remains that going forward, the four strategic sales-building initiatives undertaken by the company are likely to boost the top line. Additionally, a deep pipeline of new menu items, loyalty program enhancements and other productivity initiatives are further likely to boost performance.
So, value investors might want to wait for analyst sentiment to turn bullish in this name first, but once that happens, this stock could be a compelling pick.
Zacks' 2017 IPO Watch List
Before looking into the stocks mentioned above, you may want to get a head start on potential tech IPOs that are popping up on Zacks' radar. Imagine being in the first wave of investors to jump on a company with almost unlimited growth potential? This Special Report gives you the current scoop on 5 that may go public at any time.
One has driven from 0 to a $68 billion valuation in 8 years. Four others are a little less obvious but already show jaw-dropping growth. Download this IPO Watch List today for 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
BJ's Restaurants, Inc. (BJRI): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research