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Is Orion Engineered Carbons a Great Value Buy At the Moment?

Zacks Equity Research

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 Orion Engineered Carbons, S.A. OEC 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:

PE Ratio

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, Orion Engineered Carbons has a trailing twelve months PE ratio of 14.50, 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 19.61. If we focus on the long-term PE trend, Orion Engineered Carbons’ current PE level puts it below its midpoint over the past two years. Moreover, the current level is fairly below the highs for this stock, suggesting it might be a good entry point.

 

Further, the stock’s PE also compares favorably with the Zacks classified Chemical Diversified industry’s trailing twelve months PE ratio, which stands at 16.24. At the very least, this indicates that the stock is slightly undervalued right now, compared to its peers.

We should also point out that Orion Engineered Carbons has a forward PE ratio (price relative to this year’s earnings) of 11.88, so it is fair to say that a slightly more value-oriented path may be ahead for Orion Engineered Carbons stock in the near term too.

PEG Ratio

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.

Orion Engineered Carbons’ PEG ratio stands at just 1.34, compared with the Zacks Chemicals-Diversified industry’s average of 1.60. This suggests a decent undervalued trading relative to its earnings growth potential right now.

Broad Value Outlook

In aggregate, Orion Engineered Carbons currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes Orion Engineered Carbons a solid choice for value investors, and some of its other key metrics make this pretty clear too.

The P/S ratio for Orion Engineered Carbons currently stands at 0.96 which is lower than the industry average of 1.27. Additionally, the P/CF ratio (another great indicator of value) comes in at 8.53, better than the industry average of 8.72. Clearly, Orion Engineered Carbons is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Orion Engineered Carbons 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 ‘A’ and a Momentum score of ‘B’. This gives Orion Engineered Carbons 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 mixed at best. The current quarter has seen one estimate go higher in the past sixty days compared to no downward revision, while the full year estimate has seen two downward revisions and no upward revision in the same time period.

This has had a mixed impact on the consensus estimate as well, as the current quarter consensus estimate has remained stable over the last three months, while the full year estimate has gone down by 0.6%.

You can see the consensus estimate trend and recent price action for the stock in the chart below:

ORION ENGINRD Price and Consensus

ORION ENGINRD Price and Consensus | ORION ENGINRD Quote

This somewhat mixed 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.

Bottom Line

Orion Engineered Carbons is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. It has a fairly good industry rank(Top 25% out of more than 250 industries).  However, with a Zacks Rank #3 (Hold), it is hard to get too excited about this company overall.

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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