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Is Stora Enso (SEOAY) a Top Choice 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 Stora Enso OyjSEOAY 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, Stora Enso has a trailing twelve months PE ratio of 8.28, 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 19.9. Further, if we focus on the long-term PE trend, Stora Enso's current PE level puts it well below its midpoint of 15.22 over the past five years. Also, the multiple saw a steep decline in the end of 2015, and has been hovering around its lows since then. This suggests that the current level might be a good entry point, as the stock is trading significantly lower than its highs during the observed period. This is reflected in the chart below.

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 point out that Stora Enso has a forward PE ratio (price relative to this year's earnings) of 14.02, so it is fair to expect an increase in the company's share price in the near future.

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, Stora Enso has a P/S ratio of about 0.78. This is much lower than the S&P 500 average, which comes in at 2.97 right now, as can be seen in the chart below.

Broad Value Outlook

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

For example, its P/CF ratio (another great indicator of value) comes in at 6.04, which is better than the industry average of 7.28. Clearly, SEOAY is a solid choice on the value front from multiple angles.

What About the Stock Overall?

While Stora Enso 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 'A'. This gives SEOAY a Zacks VGM score-or its overarching fundamental grade-of 'A'. (You can read more about the Zacks Style Scores here >> )

However, the company's recent earnings estimates give us a dull picture, as the current quarter and full year estimates have seen no upward revisions in the past sixty days. Also, the current quarter has seen one downward revision, while the full year has seen two downward revisions, in the same time-frame.

This has had a negative impact on the consensus estimate, as the current quarter consensus estimate has slumped by 22.7% in the past two months, while the full year estimate has dropped by 5.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Stora Enso Oyj Price and Consensus

Stora Enso Oyj Price and Consensus | Stora Enso Oyj Quote

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

Bottom Line

Nonetheless, Stora Enso is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Despite having a Zacks Rank #3, the stock belongs to an industry which is ranked among the Top 31%, which indicates that broader factors are favorable for the company. Further, over the past one year, the Zacks classified Paper & Paper Products industry's performance has clearly outperformed 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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