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Should Value Investors Choose Ralph Lauren (RL) Stock Now?

Zacks Equity Research

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 value?

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 Ralph Lauren Corporation RL 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:

PE Ratio

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, Ralph Lauren has a trailing twelve months PE ratio of 15.81, 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 18.22. If we focus on the long- term PE trend, Ralph Lauren’ current PE level puts it below its midpoint of 16.72 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 Consumer Discretionary Market sector’s trailing twelve months PE ratio, which stands at 21.82. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.


 
We should also point out that Ralph Lauren has a forward PE ratio (price relative to this year’s earnings) of 14.83, so it is fair to say that a slightly more value-oriented path may be ahead for Ralph Lauren’ stock in the near term too.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, Ralph Lauren has a P/S ratio of about 1.44. This is much lower than the S&P 500 average, which comes in at 3.3 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.


 
Broad Value Outlook

In aggregate, Ralph Lauren currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Ralph Lauren a solid choice for value investors.

For example, its P/CF ratio (another great indicator of value) comes in at 10.21, which is better than the industry average of 10.61. Clearly, RL is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Ralph Lauren 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 C and Momentum Score of B. This gives RL 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 quarter has seen three upward revisions compared to none downward in the past sixty days, whereas the current year estimates have seen four upward revisions compared to two downward revisions in the same time period.

As a result, the current quarter consensus estimate increased 5.03% in the past two months, whereas the current year estimate rose 0.79%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Ralph Lauren Corporation Price and Consensus

Ralph Lauren Corporation Price and Consensus

Ralph Lauren Corporation price-consensus-chart | Ralph Lauren Corporation Quote

Even though Ralph Lauren has a better estimates trend, the stock has just a Zacks Rank #3 (Hold), which is why we are looking for in-line performance from the company in the near term.

Bottom Line

Ralph Lauren is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (bottom 28% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall.

So, value investors might want to wait for estimates to turn around in this name first, but once that happens, this stock could be a compelling pick.

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