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Centrica (CPYYY):Is it a Good Stock 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 Centrica plcCPYYY 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, Centrica has a trailing twelve months PE ratio of 15.30, 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 20.12. While Centrica's current PE level puts it above its midpoint of 13.56 over the past five years, it stands below the current highs for the stock, indicating that it could be a good time to enter into the stock.

Further, the stock's PE also stands little below the Zacks classified Utilities sector's trailing twelve months PE ratio, which stands at 15.54. This indicates that the stock is slightly undervalued right now, compared to its peers.

We should also point out that Centrica has a forward PE ratio (price relative to this year's earnings) of 14.55, so it is fair to say that a slightly more value-oriented path may be ahead for Centrica 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, Centrica has a P/S ratio of just 0.38. This is significantly lower than the S&P 500 average, which comes in at 3.17 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.

If anything, CPYYY 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, Centrica 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 Centrica a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, its P/CF ratio (another great indicator of value) comes in at 2.53, which is far better than the industry average of 9.94. Clearly, CPYYY is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Centrica 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 'C'. This gives CPYYY 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 somewhat encouraging, as the full year estimate has seen one upward and no downward revision in the past sixty days.

This has had a slightly positive impact on the consensus estimate, as the full year estimate has climbed by 1.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Centrica PLC Price and Consensus

Centrica PLC Price and Consensus | Centrica PLC Quote

However, this slightly 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 bullish analyst sentiment indicates that the stock's prospects in the near term look good.

Bottom Line

Centrica is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Despite having a Zacks Rank #3, the stock belongs to an industry which is ranked among the Top 14%, which indicates that broader factors are favorable for the company. Further, over the past two years, the Zacks classified Utilities - Gas Distribution industry's performance has modestly outperformed the broader sector.

So, it might pay for value investors to delve deeper into the company's prospects, as fundamentals indicate that this stock could be a good 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.