Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Amgen Inc. AMGN stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Amgen has a trailing twelve months PE ratio of 14.06, as you can see in the chart below:
This level actually compares favorably with the market at large, as the PE for the S&P 500 stands at about 17.96. If we focus on the long-term PE trend, Amgen’ current PE level puts it below its midpoint of 14.46 over the past five years, with the number having risen rapidly over the past few months. However, the current level stands below the highs for the stock, suggesting that it can be a solid entry point.
However, the stock’s PE also compares favorably with the Zacks Medical Market sector’s trailing twelve months PE ratio, which stands at 19.97. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Amgen has a forward PE ratio (price relative to this year’s earnings) of 13.79, so it is fair to say that a slightly more value-oriented path may be ahead for Amgen’ stock in the near term too.
While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate). The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.
Amgen’s PEG ratio stands at just 2.42, compared with the Zacks Medical-Biomed/ Genetics industry’s average of 4.73. This suggests a bit undervalued trading relative to its earnings growth potential right now.
Broad Value Outlook
In aggregate, Amgen currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Amgen a solid choice for value investors.
For example, its P/CF ratio (another great indicator of value) comes in at 10.86, which is better than the industry average of 14.18. Clearly, AMGN is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Amgen might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of D and Momentum Score of C. This gives AMGN a Zacks VGM score — or its overarching fundamental grade — of B. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been encouraging. The current year has seen 10 upward revision in the past sixty days compared to two downward revisions, while the full year 2020 estimate has seen nine upward revision compared to one downward revision in the same time period.
As a result, the current year consensus estimate increased 2.22% in the past two months, whereas the full year 2020 estimate rose 0.75%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Amgen Inc. Price and Consensus
Amgen Inc. price-consensus-chart | Amgen Inc. Quote
Notably, the stock with a long-term EPS growth rate of 6% and favorable estimate trends has a Zacks Rank #2 (Buy), which is why we are looking for outperformance from the company in the near term.
Amgen is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Furthermore, the Zacks Rank #2 company flaunts a robust industry rank (among the top 34%), which indicates that the broader factors are favorable for the company.
So, value investors might want to delve deeper in this stock as it appears to be a compelling pick.
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