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Can Acadia Be a Top Choice for Value Investors?

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 Acadia Healthcare Company, Inc.ACHC 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, Acadia has a trailing twelve months PE ratio of 13.67, 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 19.88. If we focus on the long-term PE trend, Acadia's current PE level puts it significantly lower than its midpoint over the past three years, with the number having fallen rapidly over the past year.

We should also point out that Acadia has a forward PE ratio (price relative to this year's earnings) of just 14.08, 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, Acadia has a P/S ratio of about 1.11. This is much lower than the S&P 500 average, which comes in at 2.98 right now.

Acadiais actually trading at historically low levels in the time period from a P/S metric, suggesting some level of undervalued trading-at least compared to historical norms.

Broad Value Outlook

In aggregate, Acadia 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 Acadia a good choice for value investors, and some of its other key metrics make this pretty clear too.

Additionally, the PEG ratio for Acadia is just 0.81, a level that is lower than the industry average of 1.35. The PEG ratio is a modified PE ratio that takes into account the stock's earnings growth rate.

What About the Stock Overall?

Though Acadia 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 'D'. This gives Acadia a Zacks VGM score-or its overarching fundamental grade-of 'B'. (You can read more about the Zacks Style Scores here >> ).

Meanwhile, the company's recent earnings estimates have been unfavorable. The current quarter has seen seven estimates going down in the past sixty days compared to no revision in the opposite direction, while the full year estimate has seen one up and eight down in the same time period.

As a result, the current quarter consensus estimate has fallen by 18.2% in the past two months, while the full year estimate has dropped 3.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

ACADIA HEALTHCR Price and Consensus

ACADIA HEALTHCR Price and Consensus | ACADIA HEALTHCR Quote

Notably, the stock has a long term expected earnings growth of 17.4% and sports a Zacks Rank #3 (Hold). These mixed expectations indicate that while the stock's growth story might be good over the long term, analysts have some apprehensions about the stock in the immediate future. Thus, we are looking for in-line performance from the company in the near term.

Bottom Line

Acadiais 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 30%) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks Medical-Hospital's industry has clearly underperformed the broader market, 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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