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Is EP Energy a Great Stock for Value Investors?

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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 EP Energy CorporationEPE 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 ratio with: a) where this ratio has been in the past; b) how does it compare to the average for the industry/sector; and c) how does it compare to the market as a whole.

On this front, EP Energy has a trailing twelve months PE ratio of 9.08, 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 compares in at about 19.84. If we focus on the stock's long-term PE trend, the current level puts EP Energy's current PE ratio above its midpoint over the past two years.

Further, the stock's PE also compares favorably with the Zacks classified Oils-Energy sector's trailing twelve months PE ratio, which stands at 74.42. At the very least, this indicates that the stock is highly undervalued right now, compared to its peers.

We should also point out that EP Energy has a forward PE ratio (price relative to this year's earnings) of just 9.24, so it is fair to say that a slightly more value-oriented path may be ahead for EP Energy 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, EP Energy has a P/S ratio of about 1.52. This is lower than the S&P 500 average, which comes in at 2.97 right now. Also, as we can see in the chart below, this is almost in-line with the highs for this stock in particular over the past few years.

If anything, EPE is in the higher end of its range in the time period from a P/S metric, suggesting that it is trading in-line-at least compared to historical norms.

Broad Value Outlook

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

For example, the PEG ratio for EP Energy is 0.92, as against the industry average of negative 2.03. The PEG ratio is a modified PE ratio that takes into account the stock's earnings growth rate. Additionally, its P/CF ratio (another great indicator of value) comes in at 1.45, which is far better than the industry average of 3.36. Clearly, EPE is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though EP Energy 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 'B'. This gives EPE 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 mixed at best. The current quarter has seen three estimates go higher in the past sixty days compared to four lower, while the full year estimate has seen eight down and none up in the same time period.

This has had just a small impact on the consensus estimate though as the current quarter consensus estimate has remained flat in the past two months, while the full year estimate has decreased nearly 9%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

EP ENERGY CP-A Price and Consensus

EP ENERGY CP-A Price and Consensus | EP ENERGY CP-A Quote

This somewhat mixed trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.

Bottom Line

EP Energy is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Boasting a good industry rank (among the top 23%) of the Zacks Rank Industries, the company deserves attention right now.

However, because it carries a Zacks Rank #3, it is hard to get too excited about this company overall.

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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