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Is Chemtura Corporation a Great Stock for Value Investors?

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 Chemtura CorporationCHMT 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, Chemtura Corporation has a trailing twelve months PE ratio of 18.32, 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 19.89. Further, if we focus on the long-term PE trend, Chemtura Corporation's current PE level puts it slightly below its midpoint of 19.79 over the past five years. Moreover, the current level stands well below the highs for this stock, suggesting it might be a good entry point.

Further, the stock's PE also compares favorably with the Zacks classified Basis Materials sector's trailing twelve months PE ratio, which stands at 24.78. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that Chemtura Corporation has a forward PE ratio (price relative to this year's earnings) of just 15.92, so it is fair to say that a slightly more value-oriented path may be ahead for Chemtura Corporation 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, Chemtura Corporation has a P/S ratio of about 1.27. This is considerably lower than the S&P 500 average, which comes in at 2.97 right now, as is reflected in the chart below.

Broad Value Outlook

In aggregate, Chemtura Corporation currently has a Zacks Value Style Score of 'B', putting it into the top 40% of all stocks we cover from this look. This makes Chemtura Corporation a solid choice for value investors.

What About the Stock Overall?

Though Chemtura Corporation 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 'B' and a Momentum score of 'F'. This gives CHMT a Zacks VGM score-or its overarching fundamental grade-of 'B'. (You can read more about the Zacks Style Scores here >> )

Further, the company's recent earnings estimates reflect that both the current quarter and full year estimates have seen no upward revisions with one downward revision each, over the past sixty days.

This has had a slight negative impact on the consensus estimate, as the current quarter consensus estimate has slipped by 2.4% in the past two months and the full year estimate has inched lower by 0.6%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Chemtura Corp. Price and Consensus

Chemtura Corp. Price and Consensus | Chemtura Corp. Quote

In light of these bearish trends, the stock has a Zacks Rank #3 (Hold) which indicates that we are looking for in-line performance from the company in the near term.

Bottom Line

Chemtura Corporation is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Also, the company has a solid industry rank (Top 26% out of over 250 industries). However, with a sluggish Zacks Rank #3, it is hard to get too excited about this stock. Further, over the past two years, the Zacks Chemicals - Specialty industry's performance 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, 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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