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Should Value Investors Buy AK Steel (AKS) Stock?

Zacks Equity Research

While the proven Zacks Rank places an emphasis on earnings estimates and estimate revisions to find strong stocks, we also know that investors tend to develop their own individual strategies. With this in mind, we are always looking at value, growth, and momentum trends to discover great companies.

Looking at the history of these trends, perhaps none is more beloved than value investing. This strategy simply looks to identify companies that are being undervalued by the broader market. Value investors use a variety of methods, including tried-and-true valuation metrics, to find these stocks.

Zacks has developed the innovative Style Scores system to highlight stocks with specific traits. For example, value investors will be interested in stocks with great grades in the "Value" category. When paired with a high Zacks Rank, "A" grades in the Value category are among the strongest value stocks on the market today.

One company to watch right now is AK Steel (AKS). AKS is currently sporting a Zacks Rank of #2 (Buy), as well as an A grade for Value. The stock is trading with a P/E ratio of 9.09, which compares to its industry's average of 10.33. Over the past 52 weeks, AKS's Forward P/E has been as high as 13.90 and as low as 2.80, with a median of 5.58.

Value investors also use the P/S ratio. The P/S ratio is is calculated as price divided by sales. This is a prefered metric because revenue can't really be manipulated, so sales are often a truer performance indicator. AKS has a P/S ratio of 0.11. This compares to its industry's average P/S of 0.26.

Finally, we should also recognize that AKS has a P/CF ratio of 1.77. This figure highlights a company's operating cash flow and can be used to find firms that are undervalued when considering their impressive cash outlook. This stock's P/CF looks attractive against its industry's average P/CF of 3.84. Over the past year, AKS's P/CF has been as high as 5.48 and as low as 1.36, with a median of 1.99.

These figures are just a handful of the metrics value investors tend to look at, but they help show that AK Steel is likely being undervalued right now. Considering this, as well as the strength of its earnings outlook, AKS feels like a great value stock at the moment.


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