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Should Value Investors Buy Penske Automotive (PAG) Stock?

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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.

Of these, value investing is easily one of the most popular ways to find great stocks in any market environment. Value investors rely on traditional forms of analysis on key valuation metrics to find stocks that they believe are undervalued, leaving room for profits.

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 Penske Automotive (PAG). PAG is currently sporting a Zacks Rank of #2 (Buy), as well as a Value grade of A. The stock is trading with a P/E ratio of 8.94, which compares to its industry's average of 9.47. Over the past 52 weeks, PAG's Forward P/E has been as high as 11.99 and as low as 8.25, with a median of 9.50.

Investors should also recognize that PAG has a P/B ratio of 1.83. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. This stock's P/B looks attractive against its industry's average P/B of 2.53. Over the past year, PAG's P/B has been as high as 2.15 and as low as 1.23, with a median of 1.55.

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. PAG has a P/S ratio of 0.3. This compares to its industry's average P/S of 0.46.

Finally, we should also recognize that PAG has a P/CF ratio of 8.03. 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 9.41. PAG's P/CF has been as high as 10.37 and as low as 6.85, with a median of 8.42, all within the past year.

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


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