Are Investors Undervaluing Shell Oil (RDS.A) Right Now?
Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.
Of these, value investing is easily one of the most popular ways to find great stocks in any market environment. Value investors use tried-and-true metrics and fundamental analysis to find companies that they believe are undervalued at their current share price levels.
Zacks has developed the innovative Style Scores system to highlight stocks with specific traits. For example, value investors will be interested in stocks with great grades in the "Value" category. When paired with a high Zacks Rank, "A" grades in the Value category are among the strongest value stocks on the market today.
One company value investors might notice is Shell Oil (RDS.A). RDS.A is currently sporting a Zacks Rank of #1 (Strong Buy) and an A for Value.
Another notable valuation metric for RDS.A is its P/B ratio of 0.62. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. This company's current P/B looks solid when compared to its industry's average P/B of 0.74. RDS.A's P/B has been as high as 1.29 and as low as 0.46, with a median of 0.79, over the past year.
Value investors also frequently use the P/S ratio. This metric is found by dividing a stock's price with the company's revenue. Some people prefer this metric because sales are harder to manipulate on an income statement. This means it could be a truer performance indicator. RDS.A has a P/S ratio of 0.37. This compares to its industry's average P/S of 0.4.
Finally, investors should note that RDS.A has a P/CF ratio of 2.48. This metric focuses on a firm's operating cash flow and is often used to find stocks that are undervalued based on the strength of their cash outlook. RDS.A's P/CF compares to its industry's average P/CF of 4.55. Within the past 12 months, RDS.A's P/CF has been as high as 5.45 and as low as 1.93, with a median of 3.40.
These figures are just a handful of the metrics value investors tend to look at, but they help show that Shell Oil is likely being undervalued right now. Considering this, as well as the strength of its earnings outlook, RDS.A feels like a great value stock at the moment.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.