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 HollySys Automation Technologies, Ltd.HOLI 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, HollySys Automation has a trailing twelve months PE ratio of 9.18, as you can see in the chart below:
We should also point out that HollySys Automation has a forward PE ratio (price relative to this year's earnings) of 9.50, so it is fair to expect an increase in the company's share price in the near future.
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, HollySys Automation has a P/S ratio of about 2.02. This is somewhat lower than the S&P 500 average, which comes in at 2.97 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, this suggests some level of undervalued trading-at least compared to historical norms.
Broad Value Outlook
In aggregate, HollySys Automation 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 HollySys Automation a solid choice for value investors.
What About the Stock Overall?
Though HollySys Automation 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 'F' and a Momentum score of 'D'. This gives HollySys Automation a Zacks VGM score-or its overarching fundamental grade-of 'F'. (You can read more about the Zacks Style Scores here >> )
Meanwhile, the company's recent earnings estimates have been somewhat disappointing. The current quarter has seen one estimate go lower in the past sixty days compared to none higher, while the full year estimate has also seen a similar trend.
This has had a considerable impact on the consensus estimate, as the current quarter consensus estimate has plunged 21.5% in the past two months, while the full year estimate declined 11.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Hollysys Automation Technologies, Ltd. Price and Consensus
This bearish trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.
HollySys Automation 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 18% 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 past three years, the Zacks Industrial Automation/Robotics sector has clearly underperformed the broader market, as you can see below:
Zacks' Top 10 Stocks for 2017
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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.