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 OceanFirst Financial Corp. OCFC 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, OceanFirst Financial has a trailing twelve months PE ratio of 16.2, 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 21.3. If we focus on the long-term PE trend, OceanFirst Financial’s current PE level puts it above its midpoint over the past five years.
Further, the stock’s PE also compares favorably with its industry’s trailing twelve months PE ratio, which stands at 18.7. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that OceanFirst Financial has a forward PE ratio (price relative to this year’s earnings) of 18.5, so it is fair to expect an increase in the company’s share price in the near future.
While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate).The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.
The company's PEG ratio stands at just 1.8, compared with its S&P 500 average of 2.2. This suggests a decent undervalued trading relative to its earnings growth potential right now.
Broad Value Outlook
In aggregate, OceanFirst Financial currently has a Zacks Value Style Score of B, putting it into the top 40% of all stocks we cover from this look. This makes OceanFirst Financial a solid choice for value investors.
What About the Stock Overall?
Though OceanFirst Financial 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 grade of B and a Momentum score of A. This gives OCFC a Zacks VGM score—or its overarching fundamental grade—of A. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the current quarter consensus estimate decreased by 2.2% in the past two months, and the current year estimate has inched lower by 4.7%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
OceanFirst Financial Corp. Price and Consensus
OceanFirst Financial Corp. Price and Consensus | OceanFirst Financial Corp. Quote
This somewhat bearish trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.
OceanFirst Financial is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a strong industry rank (Top 31% out of more than 250 industries) further strengthens its growth potential. In fact, over the past three months, its industry has outperformed the broader market, 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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