While the proven Zacks Rank places an emphasis on earnings estimates and estimate revisions to find strong stocks, we also know that investors tend to develop their own individual strategies. With this in mind, we are always looking at value, growth, and momentum trends to discover great companies.
Of these, perhaps no stock market trend is more popular than value investing, which is a strategy that has proven to be successful in all sorts of market environments. Value investors use fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.
On top of the Zacks Rank, investors can also look at our innovative Style Scores system to find stocks with specific traits. For example, value investors will want to focus on the "Value" category. Stocks with high Zacks Ranks and "A" grades for Value will be some of the highest-quality value stocks on the market today.
One company to watch right now is Collegium Pharmaceutical (COLL). COLL is currently sporting a Zacks Rank of #2 (Buy) and an A for Value.
Value investors also use the P/S ratio. The P/S ratio is is calculated as price divided by sales. Some people prefer this metric because sales are harder to manipulate on an income statement. This means it could be a truer performance indicator. COLL has a P/S ratio of 1.37. This compares to its industry's average P/S of 3.16.
Finally, we should also recognize that COLL has a P/CF ratio of 4.57. This data point considers a firm's operating cash flow and is frequently used to find companies that are undervalued when considering their solid cash outlook. This stock's P/CF looks attractive against its industry's average P/CF of 8.99. COLL's P/CF has been as high as 7.17 and as low as 4.19, with a median of 5.55, all within the past year.
Value investors will likely look at more than just these metrics, but the above data helps show that Collegium Pharmaceutical is likely undervalued currently. And when considering the strength of its earnings outlook, COLL sticks out at as one of the market's strongest value stocks.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
