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 Asbury Automotive Group, Inc. ABG 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, Asbury Automotive has a trailing twelve months PE ratio of 11.32, 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 20.23. If we focus on the long-term PE trend, Asbury Automotive’s current PE level puts it above its midpoint over the past five years.
Further, the stock’s PE also compares favorably with the sector’s trailing twelve months PE ratio, which stands at 28.86. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Asbury Automotive has a forward PE ratio (price relative to this year’s earnings) of just 9.45, so it is fair to say that a slightly more value-oriented path may be ahead for Asbury Automotive 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, Asbury Automotive has a P/S ratio of about 0.28. This is significantly lower than the S&P 500 average, which comes in at 3.50 right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, Asbury Automotive 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 Asbury Automotive a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Asbury Automotive is 0.95, a level that is lower than the industry average of 1.32. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, ABG is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Asbury Automotive 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 A and a Momentum score of A. This gives ABG 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 mixed at best. Full year 2019 has seen one estimate go higher in the past sixty days compared to three lower, while the year 2020 estimate has seen four upward and zero downward revisions in the same time period.
As a result, 2019 consensus estimate has inched lower by 0.3% in the past two months, while 2020 estimate has increased 8.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Asbury Automotive Group, Inc. Price and Consensus
Asbury Automotive Group, Inc. price-consensus-chart | Asbury Automotive Group, Inc. Quote
Despite this somewhat mixed trend, the stock boasts a Zacks Rank #1 (Strong Buy) on the back of its strong value metrics and this is why we are expecting outperformance from the company in the near-term.
Asbury Automotive 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 1%) and top Zacks Rank, Asbury Automotive looks like a strong value contender. In fact, over the past year, the industry has clearly outperformed the broader market, as you can see below:
However, given the mixed trend in earnings estimate revisions, 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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