Should Value Investors Buy Peabody Energy (BTU) Stock?
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 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 company to watch right now is Peabody Energy (BTU). BTU is currently sporting a Zacks Rank of #1 (Strong Buy) and an A for Value.
Another valuation metric that we should highlight is BTU's P/B ratio of 0.97. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. BTU's current P/B looks attractive when compared to its industry's average P/B of 1.56. Over the past 12 months, BTU's P/B has been as high as 1.73 and as low as 0.74, with a median of 1.03.
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. BTU has a P/S ratio of 0.61. This compares to its industry's average P/S of 0.88.
Finally, our model also underscores that BTU has a P/CF ratio of 2.29. 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. BTU's current P/CF looks attractive when compared to its industry's average P/CF of 3.37. BTU's P/CF has been as high as 3.45 and as low as 1.45, with a median of 2.19, all within the past year.
Investors could also keep in mind Ramaco Resources (METC), an Coal stock with a Zacks Rank of # 1 (Strong Buy) and Value grade of A.
Ramaco Resources also has a P/B ratio of 1.55 compared to its industry's price-to-book ratio of 1.56. Over the past year, its P/B ratio has been as high as 1.84, as low as 0.98, with a median of 1.34.
These figures are just a handful of the metrics value investors tend to look at, but they help show that Peabody Energy and Ramaco Resources are likely being undervalued right now. Considering this, as well as the strength of its earnings outlook, BTU and METC feels like a great value stock at the moment.
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Peabody Energy Corporation (BTU) : Free Stock Analysis Report
Ramaco Resources, Inc. (METC) : Free Stock Analysis Report
