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Are Investors Undervaluing Laredo Petroleum (LPI) Right Now?

Zacks Equity Research

Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.

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 a variety of methods, including tried-and-true valuation metrics, to find these stocks.

Zacks has developed the innovative Style Scores system to highlight stocks with specific traits. For example, value investors will be interested in stocks with great grades in the "Value" category. When paired with a high Zacks Rank, "A" grades in the Value category are among the strongest value stocks on the market today.

One stock to keep an eye on is Laredo Petroleum (LPI). LPI is currently sporting a Zacks Rank of #2 (Buy), as well as a Value grade of A.

LPI is also sporting a PEG ratio of 0.84. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. LPI's industry currently sports an average PEG of 1.08. LPI's PEG has been as high as 1.72 and as low as 0.66, with a median of 1.18, all within the past year.

Value investors also love the P/S ratio, which is calculated by simply dividing a stock's price with the company's sales. Some people prefer this metric because sales are harder to manipulate on an income statement. This means it could be a truer performance indicator. LPI has a P/S ratio of 0.64. This compares to its industry's average P/S of 1.12.

Finally, we should also recognize that LPI has a P/CF ratio of 1.45. 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. This company's current P/CF looks solid when compared to its industry's average P/CF of 5.23. Over the past year, LPI's P/CF has been as high as 3.24 and as low as 0.90, with a median of 1.65.

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


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