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 Dunelm Group plc DNLMY 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, Dunelm has a trailing twelve months PE ratio of 16.7, 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 20.0. If we focus on the long-term PE trend, Dunelm’s current PE level puts it above its midpoint over the past one year.
Further, the stock’s PE also compares favorably with the industry’s trailing twelve months PE ratio, which stands at 18.9. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Dunelm has a forward PE ratio (price relative to this year’s earnings) of just 14.4, so it is fair to say that a slightly more value-oriented path may be ahead for Dunelm 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, Dunelm has a P/S ratio of about 1.5. This is lower than the S&P 500 average, which comes in at 3.3 right now. Also, as we can see in the chart below, this is slightly below the highs for this stock in particular over the past few years.
DNLMY is actually in the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
Broad Value Outlook
In aggregate, Dunelm currently has a Zacks Value Style Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Dunelm a solid choice for value investors.
What About the Stock Overall?
Though Dunelm 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 D. This gives DNLMY 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. The current fiscal year has seen one estimate go higher in the past sixty days compared to none lower, while the next year estimate has not seen any revisions in the same time period.
As a result, the current fiscal year consensus estimate has risen by 1.6% in the past two months, while the next year estimate has remained stable.
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.
Dunelm 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 the bottom 31%) and a Zacks Rank #3, it is hard to get too excited about this company overall.
So, value investors might want to wait for estimates, analyst sentiment and broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
DUNELM GP PLC (DNLMY) : Free Stock Analysis Report
To read this article on Zacks.com click here.