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Can Macy's (M) be a Great 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 Macy's, Inc.M 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, Macy's has a trailing twelve months PE ratio of 9.89, 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 20.43. If we focus on the long-term PE trend, Macy's current PE level puts it well below its midpoint of 12.68 over the past five years. In fact, the current multiple stands closer to the lows for the stock, suggesting it to be a great entry point.

Further, the stock's PE also compares favorably with the Zacks classified Retail - Wholesale sector's trailing twelve months PE ratio, which stands at 24.97. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that Macy's has a forward PE ratio (price relative to this year's earnings) of just 8.94, so it is fair to say that a slightly more value-oriented path may be ahead for Macy's stock in the near term too.

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, Macy's has a P/S ratio of about 0.37. This is significantly lower than the S&P 500 average, which comes in at 3.10 right now. Also, as we can see in the chart below, this is quite close to the lows for this stock in particular, over the past few years.

Thus, Macy's is in the lower end of its range 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, Macy's 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 Macy's a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the PEG ratio for Macy's is just 1.05, a level that is lower than the industry average of 1.25. The PEG ratio is a modified PE ratio that takes into account the stock's earnings growth rate. Clearly, M is a solid choice on the value front from multiple angles.

What About the Stock Overall?

While Macy's 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 'D'. This gives M a Zacks VGM score-or its overarching fundamental grade-of 'A'. (You can read more about the Zacks Style Scores here >> )

Notably, the company's recent earnings estimates have been quite encouraging. The current quarter has seen two estimates go higher in the past thirty days compared to no downward revisions, while the full year estimate has seen three upward and one downward revision in the same time period.

This has had a meaningful impact on the consensus estimate, as the current quarter consensus estimate has risen by 12.9% in the past one month, while the full year estimate has jumped 7.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Macy's Inc Price and Consensus

Macy's Inc Price and Consensus | Macy's Inc Quote

However, owing to the macroeconomic headwinds looming over the retail sector, Macy's bullish trend has likely not yet been reflected in the stock, as we have just a Zacks Rank #3 (Hold), which indicates expectations of in-line performance in the near term. Nonetheless, the positive analyst sentiment indicates that the stock's prospects in the near term look good.

Bottom Line

Macy's 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 (Bottom 7% out of over 250 industries) 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 classified Retail - Regional Departmental Stores industry has clearly underperformed the broader market, as you can see below:

Nonetheless, Macy's strategic growth initiatives and strong fundamentals hint at its solid future prospects. Thus, value investors might wait for the broader factors to turn favorable for this company name first, but once that happens, this stock could be a compelling pick.

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

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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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