Should Value Investors Pick Pinnacle West (PNW) Stock Now?
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 West Capital Corporation PNW 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:
PE Ratio
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 West has a trailing twelve months PE ratio of 15.2, as you can see in the chart below:
Image Source: Zacks Investment Research
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 25.4. If we focus on the long-term PE trend, Pinnacle West’s current PE level puts it slightly below its midpoint over the past five years.
Image Source: Zacks Investment Research
Further, the stock’s PE also compares favorably with the sector’s trailing twelve months PE ratio, which stands at 18.4. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
Image Source: Zacks Investment Research
We should also point out that Pinnacle West has a forward PE ratio (price relative to this year’s earnings) of just 15.7, so we might say that the forward earnings estimates indicate that the company’s share price will likely appreciate in the near future.
P/S Ratio
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, Pinnacle West has a P/S ratio of about 2.4. This is somewhat lower than the S&P 500’s average of 5.1. 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.
Image Source: Zacks Investment Research
If anything, this suggests some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Pinnacle West 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 Pinnacle West a solid choice for value investors, and another key metric makes this pretty clear too.
For example, the PEG ratio comes in at 3.1, (which is somewhat better than the industry average of 3.6). Additionally, the P/CF ratio (another great indicator of value) comes in at 7.2, (which is somewhat better than the industry average of 8.4). Clearly, PNW is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Pinnacle West 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 F and a Momentum score of B. This gives PNW 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 mixed at best. The current quarter has seen two estimates go higher and none lower in the past sixty days, while the full year estimate has seen two up and one down in the same time period.
As a result, the consensus estimate for the current quarter has fallen by 2% while the same for full year has improved 0.2%in the past two months. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Pinnacle West Capital Corporation Price and Consensus
Pinnacle West Capital Corporation price-consensus-chart | Pinnacle West Capital Corporation Quote
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.
Bottom Line
Pinnacle West 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 17%) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the industry has clearly underperformed the broader market, as you can see below:
Image Source: Zacks Investment Research
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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