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 Fresenius Medical Care AG & Co. KGaA FMS 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, Fresenius Medical has a trailing twelve months PE ratio of 16.6, 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 17.7. If we focus on the long-term PE trend, Fresenius Medical’s current PE level puts it below its midpoint (21.9) over the past five years. Moreover, the current level is fairly below the highs for this stock (26.7), suggesting it might be a good entry point.
Further, the stock’s PE also compares favorably with the sector’s trailing twelve months PE ratio, which stands at 20.1. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Fresenius Medical has a forward PE ratio (price relative to this year’s earnings) of just 15.6, so it is fair to say that a slightly more value-oriented path may be ahead for Fresenius Medical 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, Fresenius Medical has a P/S ratio of about 1.2. 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 below the highs for this stock (1.8) in particular over the past few years.
If anything, FMS 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, Fresenius Medical 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 Fresenius Medical a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Fresenius Medical is 2.2, a level that is slightly lower than the industry average of 2.6. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Additionally, its P/CF ratio (another great indicator of value) comes in at 10.5, which is far better than the industry average of 24.0. Clearly, FMS is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Fresenius Medical 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 C and a Momentum score of F. This gives FMS a Zacks 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 trending lower. The current quarter has seen no estimates go higher in the past sixty days compared to one lower, while the full year estimate has seen zero upward and three downward revisions in the same time period.
As a result, the current quarter consensus estimate has fallen by 8.8% in the past two months, while the full year estimate has decreased 6.1%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Fresenius Medical Care AG & Co. KGaA Price and Consensus
Fresenius Medical Care AG & Co. KGaA Price and Consensus | Fresenius Medical Care AG & Co. KGaA Quote
This negative 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.
Fresenius Medical is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a strong industry rank (Top 30% out of more than 250 industries) further supports the growth potential of the stock. In fact, over the past two years, the industry has outperformed the broader market, as you can see below:
However, with a Zacks Rank #3, it is hard to get too excited about this company overall. 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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