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 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 MSG Networks MSGN 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 in 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, MSG Networks’ PE ratio for the trailing 12 months has been as low as 8 and as high as 11.11. The company’s current PE ratio is pegged at 9.67, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 17.86x.
Investors should take note that MSG Networks completed a spin-off of The Madison Square Garden Company into a separate publicly-traded company on Oct 1, 2015. If we focus on the long-term PE trend of MSG Networks since then (Oct 2, 2015), the current PE level puts it above its midpoint of 9.4. The P/E has been as high as 11.27 and as low as 7 over this period.
Further, the stock’s PE compares favorably with the Zacks Consumer Discretionary sector’s trailing 12-month PE ratio, which stands at 22.15. At the very least, this indicates that the stock is undervalued compared to its peers right now.
We should also point out that MSG Networks has a forward PE ratio (price relative to this year’s earnings) of just 8.8, so it is fair to say that a slightly more value-oriented path may be ahead for MSG Networks in the near term.
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 prefer this metric over other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, MSG Networks has a P/S ratio of about 2.48. This is lower than the S&P 500 average of 3.24 right now. Also, we can see in the chart below, this is well below the highs for this stock since the spin off. The P/S has been as high as 11.27 and as low as 7 over this period.
Broad Value Outlook
In aggregate, MSG Networks currently has a Value Score of A, putting it in the top 20% of all stocks we cover from this look. This makes MSG Networks a solid choice for value investors.
For example, the PEG ratio for MSG Networks is just 0.8, a level that is far lower than the industry average of 1.6. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Additionally, its P/CF ratio (another great indicator of value) comes in at 5.5, which is far better than the industry average of 10.1. Clearly, MSGN is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though MSG Networks 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 C and a Momentum Score of A. This gives MSGN a 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 discouraging. The current quarter has seen no upward revisions in the past 60 days compared to three downward revisions, while full-year estimates have seen no upward and five downward revisions in the same time period.
As a result, the current-quarter consensus estimate has fallen 1.5% in the past two months, while the full-year estimate has declined 1.6%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
MSG Networks Inc. Price and Consensus
MSG Networks Inc. Price and Consensus | MSG Networks Inc. Quote
The stock has a Zacks Rank #3 (Hold). We are looking for in-line performance from the company in the near term.
MSG Networks is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Furthermore, a robust industry rank (among the top 18% out of more than 250 Zacks Industries) should boost investor confidence.
However, with 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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(We are reissuing this article to correct a mistake. The original article, issued on March 8, 2019, should no longer be relied upon.)
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