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Should Value Investors Buy Legg Mason (LM) Stock?

Zacks Equity Research
Insperity (NSP) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

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 rely on traditional forms of analysis on key valuation metrics to find stocks that they believe are undervalued, leaving room for profits.

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 value investors might notice is Legg Mason (LM). LM is currently sporting a Zacks Rank of #2 (Buy), as well as a Value grade of A.

Investors should also note that LM holds a PEG ratio of 0.67. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. LM's industry currently sports an average PEG of 0.97. Over the last 12 months, LM's PEG has been as high as 0.90 and as low as -4.02, with a median of 0.54.

Another notable valuation metric for LM is its P/B ratio of 0.85. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. LM's current P/B looks attractive when compared to its industry's average P/B of 1.62. Within the past 52 weeks, LM's P/B has been as high as 0.86 and as low as 0.51, with a median of 0.69.

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. LM has a P/S ratio of 1.1. This compares to its industry's average P/S of 2.4.

Finally, our model also underscores that LM has a P/CF ratio of 7.66. 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. LM's current P/CF looks attractive when compared to its industry's average P/CF of 11.96. Over the past 52 weeks, LM's P/CF has been as high as 7.74 and as low as 4.58, with a median of 5.96.

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


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