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 Arconic Inc. ARNC 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:
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, Arconic has a trailing twelve months PE ratio of 14.05, as you can see in the chart below:
This level actually compares favorably with the market at large, as the PE for the S&P 500 stands at about 17.88. If we focus on the long-term PE trend, Arconic’s current PE level puts it much below its midpoint of 19.39 over the past five years.
However, the stock’s PE compares unfavorably with the Basic Materials Market’s trailing twelve months PE ratio, which stands at 12.6. This indicates that the stock is quite overvalued right now, compared to its peers.
It is interesting to note that, Arconic has a forward PE ratio (price relative to this year’s earnings) of 11.67, which is quite lower than the current level. So, it is fair to say that a bit more value-oriented path might be ahead for Arconic stock in the near term.
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, Arconic has a P/S ratio of just 0.69. This is significantly lower than the S&P 500 average, which comes in at 3.26 right now. Also, as we can see in the chart below, this stands below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, Arconic currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Arconic a solid choice for value investors.
What About the Stock Overall?
Though Arconic 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 Growth and Momentum Scores of D. This gives ARNC a Zacks VGM score — or its overarching fundamental grade — of B. (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 no upward revisions and two downward revisions in the past sixty days, while the full year estimate has seen two upward revisions versus one downward revision in the same time period.
This has had a mixed impact on the consensus estimate as the current-quarter consensus estimate has decreased by 2.6% in the past two months, while the current-year estimate has risen by 3.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Arconic Inc. Price and Consensus
Arconic Inc. Price and Consensus | Arconic Inc. Quote
Despite this somewhat mixed trend, the stock has a Zacks Rank #2 (Buy) and it is the reason why we are looking for outperformance from the company in the near term.
Arconic is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Further, a strong industry rank (among Top 29% of more than 250 industries) and Zacks Rank #2 instils our confidence.
However, over the past two years, the broader industry has clearly underperformed the market at large, as you can see below:
We believe, despite an unsatisfactory past industry performance, a good industry and Zacks rank signal that the stock is likely to benefit from favorable broader factors in the immediate future. Add to this robust value metrics, and we believe that we have a strong value contender in ARNC.
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Arconic Inc. (ARNC): Free Stock Analysis Report
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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.