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 Essent Group Ltd. ESNT 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, Essent Group has a trailing twelve months PE ratio of 9.65, as you can see in the chart below:
This level actually compares quite favorably with the market at large, as the PE for the S&P 500 stands at about 19.35. Also, if we focus on the long-term PE trend, Essent Group’s current PE level puts it much below its midpoint of 13.23 over the past five years.
The stock’s PE also compares quite favorably with the Finance Market’s trailing twelve months PE ratio, which stands at 14.3. This indicates that the stock is undervalued right now, compared to its peers.
Meanwhile Essent Group has a forward PE ratio (price relative to this year’s earnings) of 9.67, which is slightly than the current level. So, so it is fair to expect an increase in the share price in the near term.
While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate). The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.
Essent Group’s PEG ratio stands at just 0.89, compared with the Zacks Finance industry average of 0.99. This suggests a decent undervalued trading relative to its earnings growth potential right now.
Broad Value Outlook
In aggregate, Essent Group currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Essent Group a solid choice for value investors.
What About the Stock Overall?
Though Essent Group 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 A and a Momentum Score of A. This gives ESNT 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 bullish. While the current-year estimate has seen three upward and no downward movement, the next-year estimate has seen three upward and no downward movement over the past two months.
This has had a positive effect on the consensus estimate. While the current-year consensus shot up 2.6% over the past two months, the next-year estimate has climbed 2.7%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Essent Group Ltd. Price and Consensus
Essent Group Ltd. price-consensus-chart | Essent Group Ltd. Quote
Such bullish analyst sentiments is the reason why the stock has a Zacks Rank #2 (Buy) and why we are looking for outperformance from the company in the near term.
Essent Group is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Besides a strong industry rank (among Top 7% of more than 250 industries), a Zacks Rank #2, instils investors’ optimism in the stock.
However, over the past two years, the broader industry has clearly underperformed the market at large, as you can see below:
We believe, despite an unsatisfactory past industry performance, a good industry and Zacks rank and upbeat analyst sentiments signal that the stock is likely to benefit from favorable broader factors in the immediate future. Add to this robust value metrics, and we believe that we have a strong value contender in Essent Group.
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Essent Group Ltd. (ESNT) : Free Stock Analysis Report
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