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Are Investors Undervaluing Select Medical (SEM) 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 tried-and-true metrics and fundamental analysis to find companies that they believe are undervalued at their current share price levels.

In addition to the Zacks Rank, investors looking for stocks with specific traits can utilize our Style Scores system. Of course, value investors will be most interested in the system's "Value" category. Stocks with "A" grades for Value and high Zacks Ranks are among the best value stocks available at any given moment.

One company value investors might notice is Select Medical (SEM). SEM is currently sporting a Zacks Rank of #1 (Strong Buy), as well as an A grade for Value.

We should also highlight that SEM has a P/B ratio of 3.30. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. SEM's current P/B looks attractive when compared to its industry's average P/B of 3.60. SEM's P/B has been as high as 3.37 and as low as 1.92, with a median of 2.24, over 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. SEM has a P/S ratio of 0.56. This compares to its industry's average P/S of 0.58.

Finally, investors will want to recognize that SEM has a P/CF ratio of 7.76. 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. SEM's current P/CF looks attractive when compared to its industry's average P/CF of 14.14. Within the past 12 months, SEM's P/CF has been as high as 7.92 and as low as 4.68, with a median of 5.63.

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


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