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 Hilltop Holdings Inc. HTH 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, Hilltop Holdings has a trailing twelve months PE ratio of 17.76. This level compares pretty favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.20.
If we focus on the long-term trend of the stock, the current level puts Hilltop Holdings’ current PE at about its median (which stands at 17.11) over the past four years. Moreover, the current level is fairly below the highs for this stock, suggesting that the stock is somewhat undervalued compared to its own historical levels.
Further, the stock’s PE also compares slightly favorably with the Zacks classified Banks - Southeast industry’s trailing twelve months PE ratio, which stands at 18.09. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Hilltop Holdings has a forward PE ratio (price relative to this year’s earnings) of 16.07 – which is lower than the current figure. So it is fair to say that a slightly more value-oriented path may be ahead for Hilltop Holdings stock in the near term too.
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, Hilltop Holdings has a P/S ratio of about 1.50. This compares vastly favorably with the Zacks categorized Banks - Southeast industry’s average, which comes in at 4.94 right now.
As we can see, the stock is trading near its median value for the time period from a P/S metric. This does not provide us with a conclusive direction as to the relative valuation of the stock in comparison to its historical trend.
Broad Value Outlook
In aggregate, Hilltop Holdings currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes Hilltop Holdings a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, its P/B ratio (used to compare a stock's market value to its book value) stands at 1.37, lower than the industry average of 1.52. Additionally, its P/CF ratio (another great indicator of value) comes in at 4.67, which is far better than the industry average of 11.84. Clearly, HTH is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Hilltop Holdings 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 grade of ‘B’ and a Momentum score of ‘A’. This gives HTH a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics, and a good VGM score can increase your odds of success. All things considered, Hilltop Holdings seems to have pretty striking prospects.
Meanwhile, the company’s recent earnings estimates have been somewhat encouraging. The current quarter has seen no revisions over the past thirty days, but the full year estimate has seen two upward revisions versus none in the opposite direction, in the same time period.
This has had a small impact on the consensus estimate though as the current quarter consensus estimate has remained constant in the past month, while the full year estimate has increased 1.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Hilltop Holdings Inc. Price and Consensus
Hilltop Holdings Inc. Price and Consensus | Hilltop Holdings Inc. Quote
This fairly favorable trend is why the stock has a Zacks Rank #2 (Buy) and why we are looking for better performance from the company in the near term.
Hilltop Holdings is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. With a formidable industry rank (among the Top 30%) and strong Zacks Rank, Hilltop Holdings looks like a strong value contender. In fact, over the past two years, the Zacks Banks - Southeast industry has clearly outperformed the broader market, as you can see below:
Moreover, with the passage of the Financial Choice Act, the company is likely to increase lending activities, which along with improving loan and deposit balances will lead to improvement in top-line. Moreover, driven by strong balance sheet position, Hilltop Holdings is projected to continue enhancing shareholder value.
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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