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 Southern First Bancshares, Inc. SFST 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, Southern First has a trailing twelve months PE ratio of 11.8, as you can see in the chart below:
This level actually compares quite favorably with the market at large, as the PE for the S&P 500 stands at about 17.58. Also, if we focus on the long-term PE trend, Southern First’s current PE level puts it much below its midpoint of 16.52 over the past five years.
Also, the stock’s PE compares favorably with the Finance Market’s trailing twelve months PE ratio, which stands at 14.07. This indicates that the stock is quite undervalued right now, compared to its peers.
Moreover, Southern First has a forward PE ratio (price relative to this year’s earnings) of 11.38, which is slightly lower than the current level. So, it is fair to say that a more value-oriented path may be ahead for Southern First stock in the near term too.
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, Southern First has a P/S ratio of about 2.97. This is a bit lower than the S&P 500 average, which comes in at 3.15x right now. Also, as we can see in the chart below, this is much below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, Southern First currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Southern First a solid choice for value investors.
What About the Stock Overall?
Though Southern First 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 Score of B and a Momentum Score of B. This gives SFST 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. Both the current quarter and full-year estimates have seen one upward versus no downward revisions in the past sixty days.
This has had a positive impact on the consensus estimate as the current quarter consensus estimate has shot up 2.7% over the past two months, while the full year estimate has increased 1.6%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Southern First Bancshares, Inc. Price and Consensus
Such bullish analyst sentiments is the reason why the stock has a Zacks Rank #2 (Buy) and why we are looking for outperformance from the company in the near term.
Southern First is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. A strong industry rank (among Top 39% of more than 250 industries) and a Zacks Rank #2 instils investors’ confidence the stock.
However, over the past two years, the broader industry has clearly underperformed the market at large, as you can see below:
We believe, despite an unsatisfactory past industry performance, a strong industry and strong Zacks ranks and favorable analyst sentiments signal that the stock is likely to benefit from favorable broader factors in the immediate future. Add to this robust value metrics, and we believe that we have a strong value contender in SFST.
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Southern First Bancshares, Inc. (SFST): Free Stock Analysis Report
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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.