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Is GAIN Capital a Great Stock for Value Investors?

Buy or sell dice

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 GAIN Capital Holdings, Inc.GCAP 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, GAIN Capital has a trailing twelve months PE ratio of 7.25, 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 19.88. If we focus on the long-term PE trend, GAIN Capital's current PE level puts it below its midpoint over the past five years. Moreover, the current level is fairly below the highs for this stock, suggesting it might be a good entry point.

We should also point out that GAIN Capital has a forward PE ratio (price relative to this year's earnings) of 11.52, so we might say that the forward earnings estimates indicate that the company's share price will likely appreciate in the near future.

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, GAIN Capital has a P/S ratio of about 0.81. This is considerably lower than the S&P 500 average, which comes in at 2.84 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.

GAIN CAP HLDGS Price and Consensus | GAIN CAP HLDGS Quote

This mixed trend indicates that while the stock's growth story is intact over the medium term, analysts have some apprehensions about the stock in the immediate future.

Bottom Line

GAIN Capital is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. . It has a fairly good industry rank(Top 13% out of more than 250 industries). However, with a Zacks Rank #3 (Hold), 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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