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 First Interstate BancSystem, Inc. FIBK 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, First Interstate has a trailing twelve months PE ratio of 14.25, 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 19.24. If we focus on the stock’s long-term PE trend, the current level puts First Interstate’s current PE ratio slightly below its midpoint (which is 14.70) over the past five years.
However, the stock’s PE compares unfavorably with the Zacks Finance sector’s trailing twelve months PE ratio, which stands at 13.65. At the very least, this indicates that the stock is relatively overvalued right now, compared to its peers.
Nonetheless, we should also point out that First Interstate has a forward PE ratio (price relative to this year’s earnings) of 15.16, so it is fair to expect an increase in the company’s share price in the near future.
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, First Interstate’s P/CF ratio of 26.48 is higher than the Zacks Banks - Midwest industry average of 12.89, which indicates that the stock is somewhat overvalued in this respect.
Broad Value Outlook
In aggregate, First Interstate currently has a Value Style Score of A, putting it into the top 20% of all stocks we cover from this look. This makes FIBK a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for First Interstate is just 1.89, a level that is slightly lower than the industry average of 2.74. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, FIBK is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though First Interstate 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 F and a Momentum score of D. This gives FIBK a VGM score—or its overarching fundamental grade—of D. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been disappointing. The current quarter has seen one estimate go higher in the past sixty days and three lower, while the full year estimate has three downward and no upward estimate revisions in the same time period.
This has had a noticeable impact on the consensus estimate, as the current quarter consensus estimate has fallen 3.7% in the past two months, while the full year estimate has slipped 1.7%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
First Interstate BancSystem, Inc. Price and Consensus
First Interstate BancSystem, Inc. price-consensus-chart | First Interstate BancSystem, Inc. Quote
This negative trend is why the stock has just a Zacks Rank #3 (Hold) despite strong value metrics and why we are looking for in-line performance from the company in the near term.
First Interstate 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 42% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past one year, the sector has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for analyst sentiment, estimates and broader factors to turn favorable in this name first, but once that happens, this stock could be a compelling pick.
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First Interstate BancSystem, Inc. (FIBK) : Free Stock Analysis Report
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