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 Acadia Healthcare Company, Inc. ACHC 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, Acadia Healthcare has a trailing twelve months PE ratio of 13.3, 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 17.6. If we focus on the long-term PE trend, Acadia Healthcare’s current PE level puts it below its midpoint of 21.3 over the past five years, with the number remaining nearly stable over the past few months.
Further, the stock’s PE also compares favorably with the Zacks Medical Care sector’s trailing twelve months PE ratio, which stands at 17.8. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Acadia Healthcare has a forward PE ratio (price relative to this year’s earnings) of just 13.4, which is tad higher than the current level. So, it is fair to expect an increase in the company’s share price in the near term.
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, Acadia Healthcare has a P/S ratio of about 0.9. This is lower than the S&P 500 average, which comes in at 3.2 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.
If anything, Acadia Healthcare is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Acadia Healthcare currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Acadia Healthcare a solid choice for value investors.
What About the Stock Overall?
Though Acadia Healthcare 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 D. This gives ACHC 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 discouraging. The current quarter has seen five estimates go down in the past sixty days compared to no movement in the opposite direction. For the full year, the estimate has seen eight downward revisions over the same time period with no upward movement.
This has had a dismal impact on the consensus estimate as the current quarter consensus estimate has slumped 28.8% in the past two months, while the full year estimate has declined 8.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Acadia Healthcare Company, Inc. Price and Consensus
Acadia Healthcare Company, Inc. Price and Consensus | Acadia Healthcare Company, Inc. 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.
Acadia Healthcare 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 38% of more than 250 industries) boosts our confidence.
However, over the past two years, the Zacks Medical - Hospitals industry has underperformed the broader market, 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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