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Are Investors Undervaluing Encana (ECA) Right Now?

Zacks Equity Research

Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.

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 use fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.

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.

Encana (ECA) is a stock many investors are watching right now. ECA is currently holding a Zacks Rank of #2 (Buy) and a Value grade of A. The stock holds a P/E ratio of 6.01, while its industry has an average P/E of 9.73. ECA's Forward P/E has been as high as 16.87 and as low as 4.86, with a median of 9.39, all within the past year.

We also note that ECA holds a PEG ratio of 0.94. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. ECA's PEG compares to its industry's average PEG of 1.56. Over the last 12 months, ECA's PEG has been as high as 1.69 and as low as 0.23, with a median of 0.59.

Investors should also recognize that ECA has a P/B ratio of 0.70. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. This company's current P/B looks solid when compared to its industry's average P/B of 0.85. Over the past 12 months, ECA's P/B has been as high as 2.09 and as low as 0.70, with a median of 1.03.

Finally, we should also recognize that ECA has a P/CF ratio of 2.98. This data point considers a firm's operating cash flow and is frequently used to find companies that are undervalued when considering their solid cash outlook. ECA's P/CF compares to its industry's average P/CF of 3.17. Within the past 12 months, ECA's P/CF has been as high as 13.18 and as low as 2.35, with a median of 6.60.

These are only a few of the key metrics included in Encana's strong Value grade, but they help show that the stock is likely undervalued right now. When factoring in the strength of its earnings outlook, ECA looks like an impressive value stock at the moment.


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