Should Value Investors Consider PACCAR (PCAR) Stock?

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 PACCAR Inc PCAR 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, PACCAR has a trailing twelve months PE ratio of 19.6, as you can see in the chart below:

This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 20.7. If we focus on the long-term PE trend, PACCAR’s current PE level puts it above its midpoint of 16.8 over the past five years, with the number having risen rapidly over the past few months.

However, the stock’s PE is pegged higher than the Zacks Auto sector’s trailing twelve months PE ratio, which stands at 12.6. This indicates that the stock is relatively overvalued right now, compared to its peers.
 

We should point out that PACCAR has a forward PE ratio (price relative to this year’s earnings) of just 18.8, so it is fair to say that a slightly more value-oriented path may be ahead for PACCAR 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, PACCAR has a P/S ratio of about 1.5. This is much lower than the S&P 500 average, which comes in at 3.3 right now. This makes the stock undervalued from the P/S aspect as well.

Broad Value Outlook

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

What About the Stock Overall?

Though PACCAR 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 B and a Momentum Score of A. This gives PCAR a Zacks VGM score — or its overarching fundamental grade — of A. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been quite encouraging. The current quarter and full year have seen eight and nine estimates go higher respectively in the past sixty days compared to no downward revisions.

This has had a small positive impact on the consensus estimate, as the full year consensus estimate has risen by 0.5% in the past two months, while the current quarter estimate has remained unchanged. You can see the consensus estimate trend and recent price action for the stock in the chart below:

PACCAR Inc. Price and Consensus
 

PACCAR Inc. Price and Consensus | PACCAR Inc. Quote

This somewhat bullish trend is why the stock sports a Zacks Rank #2 (Buy) and why we are looking for outperformance from the company in the near term.

Bottom Line

PACCAR is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Further, this Zacks Rank #2 company has a solid Zacks Industry Rank (among Top 14% of more than 250 industries), which hints at favorable broader factors. In fact, over the past year, the industry has clearly outperformed the broader market, as you can see below:

So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.

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