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 Escalade, Incorporated ESCAstock 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, Escalade has a trailing twelve months PE ratio of 16.11, 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 compares in at about 20.37. If we focus on the stock’s long-term PE trend, the current level puts Escalade’s current PE ratio above its midpoint over the past five years.
Further, the stock’s PE also compares favorably with the Zacks classified Leisure and Recreation products industry’s trailing twelve months PE ratio, which stands at 21.11. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Escalade has a forward PE ratio (price relative to this year’s earnings) of just 14.33, so it is fair to say that a slightly more value-oriented path may be ahead for Escalade 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, Escalade has a P/S ratio of about 1.12. This is a bit lower than the S&P 500 average, which comes in at 3.09 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 suggests some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Escalade 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 Escalade a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Escalade is just 0.96, a level that is lower than the industry average of 1.39. 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 8.75, which is far better than the industry average of 9.10. Clearly, ESCA is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Escalade 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’s both Growth score and Momentum score are ‘A’. This gives ESCA 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 best. The current quarter has seen no estimate going higher in the past sixty days compared to one lower, while the full year estimate has seen one upward and no downward revision in the same time period.
This has had a significant impact on the consensus estimate as the current quarter consensus estimate has dropped by 47% in the past two months, while the full year estimate has increased by 2.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Escalade, Incorporated Price and Consensus
Escalade, Incorporated Price and Consensus | Escalade, Incorporated Quote
Despite this somewhat mixed trend, the stock has a Zacks Rank #2 (Buy) on the back of its strong value metrics and this is why we are expecting above-average performance from the company in the near-term
Escalade is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Furthermore, a robust industry rank (among the Top 25%) and a solid Zacks Rank instills investor confidence
However, it is hard to get too excited about this company overall as over the past two years, the Zacks Leisure and Recreation product industry has underperformed the broader market, as you can see below:
So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
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