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:
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 3.19, 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 20.39. 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.
Further, the stock’s PE compares favorably with the Zacks Finance sector’s trailing twelve months PE ratio, which stands at 12.87. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that GAIN Capital has a forward PE ratio (price relative to this year’s earnings) of just 2.31, so it is fair to say that a slightly more value-oriented path may be ahead for GAIN Capital stock in the near term too.
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 0.6. This is lower than the S&P 500 average, which comes in at 3.38 right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years.
If anything, GCAP is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, GAIN Capital currently has a Zacks Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes GAIN Capital a solid choice for value investors.
What About the Stock Overall?
Though GAIN Capital 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 Score of B and a Momentum Score of D. This gives GCAP 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 encouraging. This has had a positive impact on the consensus estimate though as the current year consensus estimate has risen by more than 100% in the past two months, while the full year 2021 estimate has increased by 1.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
GAIN Capital Holdings, Inc. Price and Consensus
This bullish trend is why the stock boasts a Zacks Rank #2 (Buy) and why we are expecting outperformance from the company in the near term.
GAIN Capital is an inspired choice for value investors, as it is hard to beat its incredible line up of statistics on this front. A strong industry rank (among top 13% of more than 250 industries) and a Zacks Rank #2 further instils our confidence.
However, over the past two years, the Zacks Financial - Investment Bank industry has clearly underperformed the market at large, as you can see below:
So, value investors might want to wait for industry trends to turn favorable in this name first, but once that happens, this stock could be a compelling pick.
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GAIN Capital Holdings, Inc. (GCAP): 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.