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 Peoples Bancorp Inc. PEBO 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, Peoples Bancorp has a trailing twelve months PE ratio of 18.73, 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 20.18. If we focus on the stock's long-term PE trend, the current level puts Peoples Bancorp's current PE ratio above its midpoint over the past five years, with the number remaining stable over the past few months.
However, the stock's PE also compares unfavorably with the Zacks classified Banks-Midwest sector's trailing twelve months PE ratio, which stands at 17.19. This indicates that the stock is tad overvalued right now, compared to its peers.
We should also point out that Peoples Bancorp has a forward PE ratio (price relative to this year's earnings) of just 17.41, so it is fair to say that a slightly more value-oriented path may be ahead for Peoples Bancorp 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, Peoples Bancorp's P/CF ratio of 11.64 is lower than the Zacks classified Banks-Midwest industry average of 23.55, which indicates that the stock is significantly undervalued in this respect.
Broad Value Outlook
In aggregate, Peoples Bancorp 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 Peoples Bancorp a solid choice for value investors.
What About the Stock Overall?
Though Peoples Bancorp 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 'C' and a Momentum score of 'F'. This gives PEBO 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 favorable. Both current year and next year have seen one estimate go higher in the past sixty days compared to no movements in the opposite direction.
This has had just a small impact on the consensus estimate though as the current year consensus estimate has risen by 1.1% in the past two months, while the full year estimate has inched upper by 2.1%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Peoples Bancorp Inc. Price and Consensus
Peoples Bancorp Inc. Price and Consensus | Peoples Bancorp Inc. Quote
Buoyed by the bullish analyst sentiments, the stock holds a Zacks Rank #2 (Buy) and we are looking for an outperformance from the company in the near term.
Peoples Bancorp is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Furthermore, a strong industry rank (among Top 21% of more than 250 industries) and a Zacks Rank #2 increases our confidence on the stock. Added to this, the Zacks Banks-Midwest industry has clearly outperformed the broader market over the past five years, as you can see below:
A robust past performance of the industry, a good industry rank signals that the stock is likely to benefit from favorable broader factors in the immediate future. Add to this the positive estimate revisions and favorable value metrics, and we believe that we have a strong value contender in Peoples Bancorp.
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