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Is Legg Mason (LM) Stock Undervalued 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.

Of these, perhaps no stock market trend is more popular than value investing, which is a strategy that has proven to be successful in all sorts of market environments. 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 company value investors might notice is Legg Mason (LM). LM is currently sporting a Zacks Rank of #2 (Buy), as well as an A grade for Value.

Investors will also notice that LM has a PEG ratio of 0.69. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. LM's PEG compares to its industry's average PEG of 1.18. Within the past year, LM's PEG has been as high as 0.90 and as low as -4.02, with a median of 0.56.

Investors should also recognize that LM has a P/B ratio of 0.90. The P/B ratio pits a stock's market value against 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 1.69. Over the past year, LM's P/B has been as high as 0.90 and as low as 0.51, with a median of 0.69.

Value investors also use the P/S ratio. The P/S ratio is is calculated as price divided by 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. LM has a P/S ratio of 1.15. This compares to its industry's average P/S of 2.6.

Finally, investors should note that LM has a P/CF ratio of 7.96. 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 12.62. LM's P/CF has been as high as 8.01 and as low as 5.41, with a median of 6.92, all within the past year.

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


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