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 Anthem, Inc. ANTM
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, Anthem has a trailing twelve months PE ratio of 15.77, 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 20.30. If we focus on the long-term PE trend, Anthem's current PE level puts it above its midpoint over the past five years, with the number having risen slightly over the past few months.
Further, the stock's PE also compares favorably with the Zacks classified Medical-Health Maintenance Organization industry's trailing twelve months PE ratio, which stands at 19.46. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
However, we should point out that Anthem has a forward PE ratio (price relative to this year's earnings) of 15.96, so it is fair to expect an increase in the company's share price 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, Anthem has a P/S ratio of about 0.60. This is significantly lower than the S&P 500 average, which comes in at 3.14 right now. However, as we can see in the chart below, this is above its midpoint in particular over the past few years.
ANTM 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, Anthem 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 Anthem a solid choice for value investors. What About the Stock Overall?
Though Anthem 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 ANTM 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 year has seen one estimate go higher in the past sixty days compared to none lower, while the next year estimate has seen seven upward and zero downward revisions in the same time period.
This has had a meaningful impact on the consensus estimate as the current year consensus estimate has risen by 3.3% in the past two months, while the next year estimate has increased 1.9%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Anthem, Inc. Price and Consensus
Anthem, Inc. Price and Consensus | Anthem, Inc. Quote
This positive trend is why the stock has a Zacks Rank #2 (Buy) and why we are looking for outperformance from the company in the near term.
Anthem is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. With a formidable industry rank (among the Top 22%) and strong Zacks Rank, Anthem looks like a strong value contender. In fact, over the past two years, the Zacks Medical-Health Maintenance Organization 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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