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Is Gilead Sciences, Inc. (GILD) Stock Great 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 Gilead Sciences, Inc. (NASDAQ: GILD ) 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:

GILD Stock's P/E Ratio

A key metric that value investors always look at is the price-to-earnings ratio, or P/E 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 P/E ratio is to compare the stock's current P/E 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, Gilead Sciences has a trailing twelve months P/E ratio of 6.02, as you can see in the chart below:

This level is significantly favorable with the market at large, as the P/E for the compares in at about 19.89. If we focus on GILD stock's long-term P/E trend, the current level puts Gilead's current P/E ratio far below its midpoint (which is 14.98) over the past five years, with the number falling over the last few months.

This level is significantly favorable with the market at large, as the P/E for the S&P 500 compares in at about 19.89. If we focus on GILD stock's long-term P/E trend, the current level puts Gilead's current P/E ratio far below its midpoint (which is 14.98) over the past five years, with the number falling over the last few months.

Moreover, the current level is below the highs for this stock, suggesting that GILD stock is undervalued compared to its historical levels.

Delving deeper into the P/E's inputs, we observed that the company's P/E multiple has been rapidly falling since early 2014. This was driven by a sharp increase in earnings, without a corresponding increase in price as seen in the chart below. These trends indicate that Gilead stock might be trading at a good entry point.

Further, GILD stock's P/E also compares favorably with the Zacks classified Medical sector's trailing twelve months P/E ratio, which stands at 18.04. At the very least, this indicates that Gilead stock is relatively undervalued right now, at least compared to its peers.

Further, GILD stock's P/E also compares favorably with the Zacks classified Medical sector's trailing twelve months P/E ratio, which stands at 18.04. At the very least, this indicates that Gilead stock is relatively undervalued right now, at least compared to its peers.

We should also point out that GILD has a forward P/E ratio (price relative to this year's earnings) of 6.90, which is roughly in line with the current level. Hence the forward earnings estimates are already incorporated in the company's current share price.

GILD Stock's P/S Ratio

Another key metric to note is the price-to-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 more difficult to manipulate with accounting tricks than earnings.

Right now, Gilead Sciences has a P/S ratio of about 3.04. This is somewhat higher than the S&P 500 average, which comes in at 2.97 right now. However, as we can see in the chart below, this is below the highs for GILD stock over the past few years.

Meanwhile, if we focus on Gilead stock's long-term trend, we see that the stock's multiple has always traded higher than the overall market. In fact, the current level is actually equal to the historical lows for the company in the observed period. Hence, we might conclude that in light of past trends, the stock seems to be trading at a low valuation from a P/S perspective.

GILD: Broad Value Outlook

In aggregate, Gilead Sciences 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 GILD stock a solid choice for value investors.

Gilead Sciences' price-to-cash-flow ratio (another great indicator of value) comes in at 5.50, while the industry's average stands at a negative 3.86. Thus, while the industry is experiencing negative cash flows, GILD's financial health seems much better. Clearly, Gilead Sciences is a solid choice on the value front from multiple angles.

What About Gilead Stock Overall?

Although GILD 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 'A'. This gives Gilead Sciences 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 disappointing. The current quarter has seen no estimate go higher in the last sixty days and two lower, while the full-year estimate has seen no upward revision and two downward revisions in the same time period.

This has had a considerable impact on the consensus estimate, as the current quarter consensus estimate has fallen 8.7% in the last two months, while the full-year estimate has declined 1.5%. You can see the consensus estimate trend and recent price action for Gilead stock in the chart below:

GILD Price and Consensus

Gilead Sciences Inc. Price and Consensus | Gilead Sciences Inc. Quote

This bearish trend is why GILD 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 on Gilead Stock

Gilead Sciences is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, despite a decent industry rank (top 33% out of more than 250 industries), a Zacks Rank #3, makes it hard to get too excited about this company overall.

In fact, over the last two years, the Zacks Medical-Biomedical/Genetics sector has clearly underperformed the broader market, as you can see below:

So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, GILD 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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