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 Thor Industries, Inc.THO 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, Thor Industries has a trailing twelve months PE ratio of 18.4, as you can see below:
This level compares pretty favorably with the market at large, as the PE ratio for the S&P 500 comes in at 20.8. If we focus on the long-term trend of the stock, the current level puts Thor Industries' current PE above its median over the past five years.
Further, the stock's PE also compares favorably with the Construction sector's trailing twelve months PE ratio, which stands at 20.7. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Thor Industries has a forward PE ratio (price relative to this year's earnings) of 11.8 - which is lower than the current figure. So it is fair to say that a slightly more value-oriented path may be ahead for Thor Industries 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, Thor Industries has a P/S ratio of about 0.9. This is significantly lower than the S&P 500 average, which comes in at 3.3 right now. In fact, the stock has always been relatively undervalued compared to the industry, in this respect.
If anything, this suggests some level of undervalued trading-at least compared to historical norms.
Broad Value Outlook
In aggregate, Thor Industries 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 Thor Industries an apt choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the EV/EBITDA for Thor Industries is just 10.2, a level that is far lower than the industry average of 20.1. The EV/EBITDA multiple (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) is capital structure-neutral, as it takes into account the level of debt on a company's balance sheet, not just its equity. Since the Construction market is highly capital-intensive, it makes sense to compare based on this ratio too.
Clearly, THO is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Thor Industries 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 A and a Momentum score of C. This gives THO 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 trending upwards lately. The current quarter has seen three estimates go higher in the past thirty days compared to one lower, while the full year estimate has seen five upward revisions versus none in the opposite direction, in the same time period.
As a result, the current quarter consensus estimate has risen by 8.4% in the past month, while the full year estimate has increased 8.5%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Thor Industries, Inc. Price and Consensus
This positive trend signifies bullish analyst sentiment, and its Zacks Rank #1 (Strong Buy) indicates robust fundamentals and expectations of outperformance in the near term.
Thor Industries is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. It forms a part of the Zacks Categorized Building Products - Mobile Homes and RV Builders industry, which ranks among the Top 1% out of more than 250 industries. Notably, the increasingly growing industry has outpaced the broader market over the past six months, 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.