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 Carpenter Technology Corporation CRS 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, Carpenter Technology has a trailing twelve months PE ratio of 16.43, as you can see in the chart below:
This level actually compares favorably with the market at large, as the PE for the S&P 500 stands at about 17.88. If we focus on the long-term PE trend, Carpenter Technology’s current PE level puts it below its midpoint over the past five years.
However, the stock’s PE compares unfavorably with the Zacks Steel sector’s trailing twelve months PE ratio, which stands at 5.46. At the very least, this indicates that the stock is relatively overvalued right now, compared to its peers.
Nonetheless, we should also point out that Carpenter Technology has a forward PE ratio (price relative to this year’s earnings) of just 10.5, so it is fair to say that a slightly more value-oriented path may be ahead for Carpenter Technology’s 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, Carpenter Technology has a P/S ratio of about 0.98. This is lower than the S&P 500 average, which comes in at 3.26x 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, this suggests some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, CRS currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Carpenter Technology a solid choice for value investors.
What About the Stock Overall?
Though CRS 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 C. This gives CRS 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. The current year has seen two upward revisions and one down in the past sixty days. For the next year, the estimate has seen two estimates go down over the same time period with no upward movement.
This has had an impact on the consensus estimate as the current year consensus estimate has increased 3.5% in the past two months, while the next year estimate has declined 1%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Carpenter Technology Corporation Price and Consensus
Carpenter Technology Corporation Price and Consensus | Carpenter Technology Corporation Quote
This somewhat mixed trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.
Carpenter Technology is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (among Bottom 4% of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past one year, the Zacks Steel- Specialty Alloys industry has clearly underperformed the market at large, 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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