- Oops!Something went wrong.Please try again later.
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 Texas Capital Bancshares, Inc. TCBI 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, Texas Capital has a trailing twelve months PE ratio of 17.97, 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 27.25. If we focus on the long-term PE trend, Texas Capital’s current PE level puts it slightly below its midpoint over the past five 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 sector’s trailing twelve months PE ratio, which stands at 18.58. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Texas Capital has a forward PE ratio (price relative to this year’s earnings) of just 14.27, so it is fair to say that a slightly more value-oriented path may be ahead for Texas Capital 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, Texas Capital has a P/S ratio of about 2.93. This is lower than the S&P 500 average, which comes in at 5.09 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.
If anything, TCBI is toward the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Texas Capital 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 Texas Capital a solid choice for value investors.
What About the Stock Overall?
Though Texas Capital 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 TCBI 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 mostly encouraging. The current quarter has seen six estimates go higher in the past sixty days compared to one lower, while the full year estimate has seen eight upward and two downward revisions in the same time period.
As a result, the current quarter consensus estimate has risen by 11.6% in the past two months, while the full year estimate has increased 8.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Texas Capital Bancshares, Inc. Price and Consensus
Texas Capital Bancshares, Inc. price-consensus-chart | Texas Capital Bancshares, Inc. Quote
Even though Texas Capital has a better estimates trend, the stock has just a Zacks Rank #3 (Hold). That is why we are looking for in-line performance from the company in the near term.
Texas Capital is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. With a solid industry rank (among the Top 13%), Texas Capital looks like a strong value contender. In fact, over the past one year, the industry has clearly outperformed the broader market, as you can see below:
So, despite a Zacks Rank #3, we believe that bullish analyst sentiment and favorable industry factors make this stock a compelling value pick.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
See these 7 breakthrough stocks now>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Texas Capital Bancshares, Inc. (TCBI) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research