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Should Value Investors Buy Capital One (COF) Stock?

Zacks Equity Research

Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.

Of these, value investing is easily one of the most popular ways to find great stocks in any market environment. Value investors use a variety of methods, including tried-and-true valuation metrics, to find these stocks.

In addition to the Zacks Rank, investors looking for stocks with specific traits can utilize our Style Scores system. Of course, value investors will be most interested in the system's "Value" category. Stocks with "A" grades for Value and high Zacks Ranks are among the best value stocks available at any given moment.

One company to watch right now is Capital One (COF). COF is currently sporting a Zacks Rank of #2 (Buy) and an A for Value. The stock holds a P/E ratio of 7.92, while its industry has an average P/E of 7.94. Over the last 12 months, COF's Forward P/E has been as high as 8.91 and as low as 6.23, with a median of 7.70.

Investors should also recognize that COF has a P/B ratio of 0.78. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. This stock's P/B looks solid versus its industry's average P/B of 0.93. COF's P/B has been as high as 0.95 and as low as 0.66, with a median of 0.77, over the past year.

Value investors also love the P/S ratio, which is calculated by simply dividing a stock's price with the company's sales. This is a prefered metric because revenue can't really be manipulated, so sales are often a truer performance indicator. COF has a P/S ratio of 1.32. This compares to its industry's average P/S of 1.53.

Value investors will likely look at more than just these metrics, but the above data helps show that Capital One is likely undervalued currently. And when considering the strength of its earnings outlook, COF sticks out at as one of the market's strongest value stocks.


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