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 Foot Locker, Inc. FL 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, Foot Locker has a trailing twelve months PE ratio of 15.71, 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 20.43. If we focus on the long-term PE trend, Foot Locker’s current PE level puts it slightly above its midpoint of 15.33 over the past five years, with the number having been on an uptrend since mid-2016. However, the current level stands well below the highs for the stock, suggesting that it could be a good entry point.
Further, the stock’s PE also compares favorably with the Zacks classified Retail – Wholesale sector’s trailing twelve months PE ratio, which stands at 24.97. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Foot Locker has a forward PE ratio (price relative to this year’s earnings) of just 14.04, so it is fair to say that a slightly more value-oriented path may be ahead for Foot Locker 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, Foot Locker has a P/S ratio of about 1.30. This is much lower than the S&P 500 average, which comes in at 3.10 right now. Also, as we can see in the chart below, this is slightly below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, Foot Locker 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 Foot Locker a solid choice for value investors.
What About the Stock Overall?
While Foot Locker 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 FL a Zacks VGM score—or its overarching fundamental grade—of ‘B’. (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 one estimate go higher in the past sixty days compared to five lower, while the full year estimate has seen 11 upward and no downward revisions in the same time period.
This has had a mixed impact on the consensus estimate, as the current quarter consensus estimate has dropped by 3.3% in the past two months, while the full year estimate has increased 2.9%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Foot Locker, Inc. Price and Consensus
Foot Locker, Inc. Price and Consensus | Foot Locker, Inc. 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.
Foot Locker is an inspired choice for value investors, given its incredible lineup of statistics on this front. However, with a sluggish industry rank (Bottom 12% out of over 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks categorized Retail – Apparel/Shoe industry has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for analyst sentiment and the broader industry factors to turn around in this name first, but once that happens, this stock could be a compelling pick.
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Foot Locker, Inc. (FL): Free Stock Analysis Report
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