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 PACCAR Inc PCAR 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, PACCAR Inc has a trailing twelve months PE ratio of 9.7, 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 compares in at about 16.9. If we focus on the stock’s long-term PE trend, the current level puts PACCAR Inc’s current PE ratio somewhat below its midpoint (which is 16.1) 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 10.9. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that PACCAR Inc has a forward PE ratio (price relative to this year’s earnings) of just 9.2, so it is fair to say that a slightly more value-oriented path may be ahead for PACCAR Inc’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, PACCAR Inc’s P/CF ratio of 5.99 is lower than the industry average of 6.48, which indicates that the stock is somewhat undervalued in this respect.
Broad Value Outlook
In aggregate, PACCAR Inc currently has a Value Style Score of A, putting it into the top 20% of all stocks we cover from this look. This makes PCAR a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for PACCAR Inc is just 0.9, a level that is slightly lower than the industry average of 1.2. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, PCAR is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though PACCAR Inc 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 B and a Momentum score of C. This gives PCAR a 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 encouraging. The current quarter has seen four estimates go higher in the past sixty days and one lower, while the full year estimate has seen nine upward and one downward revisions in the same time period.
This has had a positive impact on the consensus estimate, as the current quarter consensus estimate has risen about 4% in the past two months, while the full year estimate has nudged up 1.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
PACCAR Inc. Price and Consensus
PACCAR Inc. Price and Consensus | PACCAR Inc. Quote
Even though PACCAR Inc has a better estimates trend, the stock has just a Zacks Rank #3 (Hold). That is why we are looking for in-line performance from the company in the near term.
PACCAR Inc 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 7% out of more than 250 industries) further supports the growth potential of the stock. However, with a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past one year, the sector has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for industry trends to turn favorable in this name first, but once that happens, this stock could be a compelling pick.
3 Medical Stocks to Buy Now
The greatest discovery in this century of biology is now at the flashpoint between theory and realization. Billions of dollars in research have poured into it. Companies are already generating revenue, and cures for a variety of deadly diseases are in the pipeline.
So are big potential profits for early investors. Zacks has released an updated Special Report that explains this breakthrough and names the best 3 stocks to ride it.
See them today for free >>
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
PACCAR Inc. (PCAR) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research