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Is LyondellBasell Industries 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 LyondellBasell Industries N.V.LYB 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, LyondellBasell Industries has a trailing twelve months PE ratio of 9.63, 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. If we focus on the long-term PE trend, LyondellBasell Industries' current PE level puts it below its midpoint over the past five years, with the number having risen gradually over the past few months.

This increase could be due to the fact that the stock's price has been increasing somewhat while earnings have been on a downtrend over the past few months. Both of these trends have had an inflating effect on the PE ratio.

Further, the stock's PE also compares favorably with the Zacks classified Basic 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 LyondellBasell Industries has a forward PE ratio (price relative to this year's earnings) of 9.36, so it is fair to say that a slightly more value-oriented path may be ahead for LyondellBasell Industries 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, LyondellBasell Industries has a P/S ratio of about 1.32. This is quite lower than the S&P 500 average, which comes in at 2.97 right now.

Broad Value Outlook

In aggregate, LyondellBasell 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 LyondellBasell a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the PEG ratio for LyondellBasell is just 1.17, a level that is somewhat lower than the industry average of 1.95. The PEG ratio is a modified PE ratio that takes into account the stock's earnings growth rate. Additionally, its P/CF ratio (another great indicator of value) comes in at 6.54, which is far better than the industry average of 9.36. Clearly, LYB is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though LyondellBasell 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 'B'. This gives LYB 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 decidedly bearish. The current quarter has seen four estimates go lower in the past sixty days compared to none higher, while the full year estimate has seen four down and none up in the same time period.

This has had a considerable impact on the consensus estimate, as the current quarter consensus estimate has dropped by 8.9% in the past two months, while the full year estimate has gone lower by 2.1%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

LyondellBasell Industries Price and Consensus

LyondellBasell Industries Price and Consensus | LyondellBasell Industries Quote

Despite the recent bearish analyst sentiment, the stock has a Zacks Rank #2 (Buy) on the back of its strong value metrics, and this is why we are expecting above-average performance from the company in the near-term.

Bottom Line

LyondellBasell is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. With a formidable industry rank (among the Top 28%) and strong Zacks Rank, LyondellBasell looks like a strong value contender. Moreover, over the past one year, the Zacks categorized Chemicals-Diversified industry has clearly outperformed the broader market, as you can see below:

So, it might pay for value investors to delve deeper into the company's prospects, as fundamentals indicate that 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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