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 Fifth Third Bancorp FITB 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, Fifth has a trailing twelve months PE ratio of 13.87, 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 20.48. If we focus on the long-term PE trend, Fifth’s current PE level puts it above its midpoint over the past five years, with the number having risen rapidly over the past few months.
Further, the stock’s PE also compares favorably with the Zacks classified Banks-Major Regional industry’s trailing twelve months PE ratio, which stands at 15.29. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Fifth has a forward PE ratio (price relative to this year’s earnings) of just 14.98, so it is fair to expect an increase in the company’s share price in the near future.
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, Fifth has a P/S ratio of about 2.90, lower than the S&P 500 average, which comes in at 3.10 right now.
If anything, Fifth is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Fifth currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes Fifth a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Fifth is just 1.92, a level that is lower than the industry average of 2.04. 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 7.55, which is far better than the industry average of 10.73. Clearly, FITB is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Fifth 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 ‘D’ and a Momentum score of ‘C’. This gives FITB a Zacks VGM score—or its overarching fundamental grade—of ‘C’. (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 three upward estimate revision in the past sixty days compared to four downward, while the full year estimate has seen eleven upward and one downward revisions in the same time frame.
As a result, the current quarter consensus estimate has moved down 2.6% in the past two months, while the full year estimate has inched higher by 2.9%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Fifth Third Bancorp Price and Consensus
Fifth Third Bancorp Price and Consensus | Fifth Third Bancorp Quote
This somewhat 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. It also indicates that though the stock’s growth story might be good over the long term, analysts have some apprehensions about the stock in the immediate future.
Fifth is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a strong industry rank (Top 38% out of more than 250 industries) further supports the growth potential of the stock. In fact, over the past six months, the Zacks Banks-Major Regional industry has outperformed the broader market, as you can see below:
So, despite a Zacks Rank #3, we believe that strong value metrics and favorable industry factors make this value stock a compelling pick.
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Fifth Third Bancorp (FITB): Free Stock Analysis Report
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