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Are Investors Undervaluing Select Medical (SEM) Right Now?

Zacks Equity Research

The proven Zacks Rank system focuses on earnings estimates and estimate revisions to find winning stocks. Nevertheless, we know that our readers all have their own perspectives, so we are always looking at the latest trends in value, growth, and momentum to find strong picks.

Of these, value investing is easily one of the most popular ways to find great stocks in any market environment. Value investors use tried-and-true metrics and fundamental analysis to find companies that they believe are undervalued at their current share price levels.

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 Select Medical (SEM). SEM is currently sporting a Zacks Rank of #2 (Buy), as well as a Value grade of A. The stock is trading with a P/E ratio of 11.54, which compares to its industry's average of 17.69. SEM's Forward P/E has been as high as 20.93 and as low as 7.91, with a median of 13.81, all within the past year.

We also note that SEM holds a PEG ratio of 0.77. 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. SEM's PEG compares to its industry's average PEG of 1.33. Over the past 52 weeks, SEM's PEG has been as high as 1.50 and as low as 0.53, with a median of 0.99.

Investors should also recognize that SEM has a P/B ratio of 2.39. The P/B ratio is used to compare a stock's market value with 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 3.75. Within the past 52 weeks, SEM's P/B has been as high as 4.08 and as low as 1.62, with a median of 2.31.

Value investors also use the P/S ratio. The P/S ratio is is calculated as price divided by sales. This is a prefered metric because revenue can't really be manipulated, so sales are often a truer performance indicator. SEM has a P/S ratio of 0.39. This compares to its industry's average P/S of 0.57.

Finally, we should also recognize that SEM has a P/CF ratio of 5.92. This metric focuses on a firm's operating cash flow and is often used to find stocks that are undervalued based on the strength of their cash outlook. This stock's P/CF looks attractive against its industry's average P/CF of 14.76. Over the past year, SEM's P/CF has been as high as 10.12 and as low as 4.02, with a median of 5.88.

These are just a handful of the figures considered in Select Medical's great Value grade. Still, they help show that the stock is likely being undervalued at the moment. Add this to the strength of its earnings outlook, and we can clearly see that SEM is an impressive value stock right now.


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