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 Pinnacle Financial Partners, Inc. PNFP 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, Pinnacle Financial Partners has a trailing twelve months PE ratio of 11.35, 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 17.58. If we focus on the long-term PE trend, Pinnacle Financial Partners’ current PE level puts it well below its midpoint of 19.26 over the past five years, with the number having risen rapidly over the past few months. However, the current level stands well below the highs for the stock, suggesting that it can be a solid entry point.
However, the stock’s PE also compares favorably with the Zacks Finance Market sector’s trailing twelve months PE ratio, which stands at 14.07. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Pinnacle Financial Partners has a forward PE ratio (price relative to this year’s earnings) of 10.81, so it is fair to say that a slightly more value-oriented path may be ahead for Pinnacle Financial Partners’ 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, Pinnacle Financial Partners’ P/CF ratio of 7.86 is lower than the Zacks Banks and Thrifts industry average of 13.61, which indicates that the stock is somewhat undervalued in this respect.
Broad Value Outlook
In aggregate, Pinnacle Financial Partners currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Pinnacle Financial Partners a solid choice for value investors.
For example, the PEG ratio for Pinnacle Financial Partners is just 0.77, a level that is lower than the industry average of 1.28. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate.
What About the Stock Overall?
Though Pinnacle Financial Partners 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 Momentum Score of A. This gives PNFP 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 encouraging. The current quarter has seen three upward revisions compared to no downward revision in the past sixty days, while the full year estimate has seen three upward and three downward revisions in the same time period.
As a result, the current quarter consensus estimate increased 1.59% in the past two months, whereas the full year estimate rose 0.20%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Pinnacle Financial Partners, Inc. Price and Consensus
Pinnacle Financial Partners, Inc. price-consensus-chart | Pinnacle Financial Partners, Inc. Quote
Even though Pinnacle Financial Partners 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.
Pinnacle Financial Partners is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a Zacks Rank #3, it is hard to get too excited about this company overall.
Moreover, over the past two years, the broader 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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