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Should Value Investors Buy Capital One (COF) Stock?

Zacks Equity Research

Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.

Considering these trends, value investing is clearly one of the most preferred ways to find strong stocks in any type of market. Value investors use tried-and-true metrics and fundamental analysis to find companies that they believe are undervalued at their current share price levels.

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 stock to keep an eye on is Capital One (COF). COF is currently sporting a Zacks Rank of #2 (Buy), as well as an A grade for Value. The stock holds a P/E ratio of 7.25, while its industry has an average P/E of 7.38. Over the past year, COF's Forward P/E has been as high as 9.04 and as low as 6.23, with a median of 7.74.

Investors should also recognize that COF has a P/B ratio of 0.71. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. COF's current P/B looks attractive when compared to its industry's average P/B of 0.82. Within the past 52 weeks, COF's P/B has been as high as 0.97 and as low as 0.66, with a median of 0.78.

Value investors also frequently use the P/S ratio. This metric is found by dividing a stock's price with the company's revenue. Some people prefer this metric because sales are harder to manipulate on an income statement. This means it could be a truer performance indicator. COF has a P/S ratio of 1.18. This compares to its industry's average P/S of 1.5.

Finally, our model also underscores that COF has a P/CF ratio of 4.61. This data point considers a firm's operating cash flow and is frequently used to find companies that are undervalued when considering their solid cash outlook. COF's P/CF compares to its industry's average P/CF of 4.67. Over the past 52 weeks, COF's P/CF has been as high as 8.45 and as low as 4.25, with a median of 4.95.

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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