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 Bank of Commerce Holdings BOCH 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, Bank of Commerce has a trailing twelve months PE ratio of 17.3, 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 compares in at about 21.2. If we focus on the stock’s long-term PE trend, the current level puts Bank of Commerce’s current PE ratio considerably above its midpoint (which is 12.2) over the past five years.
Further, the stock’s PE also compares favorably with the industry’s trailing twelve months PE ratio, which stands at 19.8. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Bank of Commerce has a forward PE ratio (price relative to this year’s earnings) of just 17.2, so it is fair to say that a slightly more value-oriented path may be ahead for Bank of Commerce’s stock in the near term too.
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, Bank of Commerce’s P/CF ratio of 13.6 is slightly lower than the industry average of 15.9, which indicates that the stock is somewhat undervalued in this respect.
Broad Value Outlook
In aggregate, Bank of Commerce currently has a Value Style Score of B, putting it into the top 40% of all stocks we cover from this look. This makes BOCH a solid choice for value investors.
What About the Stock Overall?
Though Bank of Commerce 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 F and a Momentum score of D. This gives BOCH a VGM score—or its overarching fundamental grade—of C. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been encouraging. The current quarter has seen two estimates go higher in the past sixty days, compared to none lower, while the full year estimate has seen a similar trend in the same time period.
This has had a noticeable impact on the consensus estimate, as the current quarter consensus estimate has climbed nearly 18.8% in the past two months, while the full year estimate has risen about 9.5%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Bank of Commerce Holdings (CA) Price and Consensus
Bank of Commerce Holdings (CA) Price and Consensus | Bank of Commerce Holdings (CA) Quote
This favorable trend is why the stock has just a Zacks Rank #2 (Buy) and why we are looking for better performance from the company in the near term.
Bank of Commerce is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Boasting a decent industry rank (top 43% out of more than 250 industries) and a strong Zacks Rank, the company deserves attention right now. However, over the past one year, the sector has clearly underperformed the broader market, as you can see below:
Despite positive estimate revision activity, investors should wait for industry trends to turn around first. When it does, this stock could be a compelling value pick.
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