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Are Investors Undervaluing E-Trade (ETFC) Right Now?

Zacks Equity Research
Monotype (TYPE) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

While the proven Zacks Rank places an emphasis on earnings estimates and estimate revisions to find strong stocks, we also know that investors tend to develop their own individual strategies. With this in mind, we are always looking at value, growth, and momentum trends to discover great companies.

Looking at the history of these trends, perhaps none is more beloved than value investing. This strategy simply looks to identify companies that are being undervalued by the broader market. Value investors rely on traditional forms of analysis on key valuation metrics to find stocks that they believe are undervalued, leaving room for profits.

Luckily, Zacks has developed its own Style Scores system in an effort to find stocks with specific traits. Value investors will be interested in the system's "Value" category. Stocks with both "A" grades in the Value category and high Zacks Ranks are among the strongest value stocks on the market right now.

One company to watch right now is E-Trade (ETFC). ETFC is currently holding a Zacks Rank of #2 (Buy) and a Value grade of A.

Another valuation metric that we should highlight is ETFC's P/B ratio of 1.85. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. This stock's P/B looks solid versus its industry's average P/B of 2. Within the past 52 weeks, ETFC's P/B has been as high as 2.82 and as low as 1.73, with a median of 2.11.

Finally, investors will want to recognize that ETFC has a P/CF ratio of 8.56. This metric takes into account a company's operating cash flow and can be used to find stocks that are undervalued based on their solid cash outlook. ETFC's current P/CF looks attractive when compared to its industry's average P/CF of 18.52. Over the past year, ETFC's P/CF has been as high as 17.99 and as low as 8.33, with a median of 10.38.

Value investors will likely look at more than just these metrics, but the above data helps show that E-Trade is likely undervalued currently. And when considering the strength of its earnings outlook, ETFC sticks out at as one of the market's strongest value stocks.


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