Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Lincoln Electric Holdings, Inc. LECO stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Lincoln Electric Holdings has a trailing twelve months PE ratio of 17.8, as you can see in the chart below:
This level actually compares favorably with the market at large, as the PE for the S&P 500 stands at about 18.36. If we focus on the long-term PE trend, Lincoln Electric Holdings’ current PE level puts it below its midpoint of 18.45 over the past five years, with the number having risen rapidly over the past few months. However, the current level stands below the highs for the stock, suggesting that it can be a solid entry point.
However, the stock’s PE also compares unfavorably with the Zacks Industrial Products Market sector’s trailing twelve months PE ratio, which stands at 16.26. At the very least, this indicates that the stock is relatively overvalued right now, compared to its peers.
We should also point out that Lincoln Electric Holdings has a forward PE ratio (price relative to this year’s earnings) of 17.23, so it is fair to say that a slightly more value-oriented path may be ahead for Lincoln Electric Holdings’ stock in the near term too.
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Lincoln Electric Holdings has a P/S ratio of about 1.84. This is much lower than the S&P 500 average, which comes in at 3.23 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, Lincoln Electric Holdings currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Lincoln Electric Holdings a solid choice for value investors.
For example, the PEG ratio for Lincoln Electric Holdings is just 1.53, a level that is lower than the industry average of 1.97. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, LECO is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Lincoln Electric Holdings might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of A and Momentum Score of C. This gives LECO a Zacks VGM score — or its overarching fundamental grade — of A. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been disappointing. The current year has seen two upward revisions in the past sixty days compared to five downward revisions, while the full year 2020 estimate has seen thee upward revisions compared to four downward revisions in the same time period.
As a result, the current year consensus estimate declined 0.39% in the past two months, whereas the full year 2020 estimate fell 0.88%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Lincoln Electric Holdings, Inc. Price and Consensus
Lincoln Electric Holdings, Inc. price-consensus-chart | Lincoln Electric Holdings, Inc. Quote
Owing to such bearish estimate trends, the stock has a Zacks Rank #3 (Hold), which is why we are looking for in-line performance from the company in the near term.
Lincoln Electric Holdings is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (bottom 4% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the broader industry has underperformed the market at large, as you can see below:
So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
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