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 Apollo Investment Corporation AINV 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, Apollo Investment has a trailing twelve months PE ratio of 8.81, 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 17.11. If we focus on the long-term PE trend, Apollo Investment’s current PE level puts it below its midpoint over the past five years.
Further, the stock’s PE also compares pretty favorably with the Zacks - Finance sector’s trailing twelve months PE ratio, which stands at 13.75. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Apollo Investment has a forward PE ratio (price relative to this year’s earnings) of just 8.53, so it is fair to say that a slightly more value-oriented path may be ahead for the 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.
Apollo Investment’s PEG ratio stands at 8.74, compared with the Zacks Financial - SBIC & Commercial industry average of 3.67. This suggests overvalued trading relative to its earnings growth potential right now.
If anything, this suggests some level of overvalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Apollo Investment currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes the stock a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the P/CF ratio for Apollo Investment is just 8.36, a level that is far lower than the industry average of 9.54. Clearly, AINV is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though AINV 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 F and a Momentum Score of C. This gives AINV a Zacks VGM score — or its overarching fundamental grade — of D. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been disappointing. The current year has seen one upward revision with four downward movement in the past sixty days. For the next year, the estimate has seen one upward revision in the same time period with no movement in the opposite direction.
This has had an impact on the consensus estimate as the current year consensus estimate has decreased 2.7% in the past two months, while the next year estimate plunged 2.1%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Apollo Investment Corporation Price and Consensus
Apollo Investment Corporation price-consensus-chart | Apollo Investment Corporation Quote
Despite the bearish analyst sentiments, the stock holds a Zacks Rank #3 (Hold). Thus, we are looking for in-line performance from the company in the near term.
Apollo Investment is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Further, a strong industry rank (among Top 39% of more than 250 industries) and Zacks Rank #3, supports the company overall.
However, over the past two years, the industry has clearly underperformed the market at large, as you can see below:
So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
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