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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 Penske Automotive Group, Inc. PAG 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, Penske Automotive has a trailing twelve months PE ratio of 10.35, 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 25.41. If we focus on the long-term PE trend, Penske Automotive’s current PE level puts it slightly above its midpoint 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 12.08. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Penske Automotive has a forward PE ratio (price relative to this year’s earnings) of just 10.04, so it is fair to say that a slightly more value-oriented path may be ahead for Penske Automotive 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, Penske Automotive has a P/S ratio of about 0.22. This is significantly lower than the S&P 500 average, which comes in at 5.13 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.
PAG 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, Penske Automotive 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 Penske Automotive a solid choice for value investors.
What About the Stock Overall?
Though Penske Automotive 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 B. This gives PAG 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 mostly trending higher. The current quarter has seen three estimates go higher in the past sixty days compared to one lower, while the full year estimate has seen five upward and zero downward revisions in the same time period.
As a result, the current quarter consensus estimate has risen by 34.4% in the past two months, while the full year estimate has increased 30.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Penske Automotive Group, Inc. Price and Consensus
Penske Automotive Group, Inc. price-consensus-chart | Penske Automotive Group, Inc. Quote
This bullish trend is why the stock boasts a Zacks Rank #1 (Strong Buy) and why we are expecting outperformance from the company in the near term.
Penske Automotive is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Boasting a good industry rank (among the top 4%) and a top Zacks Rank, the company deserves attention right now. In fact, over the past two years, the industry has clearly outperformed the broader market, as you can see below:
So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
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Penske Automotive Group, Inc. (PAG) : Free Stock Analysis Report
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