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 Ultra Clean Holdings, Inc. UCTT 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, Ultra Clean Holdings has a trailing twelve months PE ratio of 13.48, 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 15.77. If we focus on the long-term PE trend, Ultra Clean Holding’s current PE level puts it below its midpoint (which is 13.55) over the past five years. Moreover, the current level stands well below the highs for the stock, suggesting that it can be a solid entry point.
Further, the stock’s PE also compares favorably with the Zacks Computer & Technology sector’s trailing twelve months PE ratio, which stands at 21.62. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Ultra Clean Holdings has a forward PE ratio (price relative to this year’s earnings) of just 6.86, so it is fair to say that a slightly more value-oriented path may be ahead for Ultra Clean Holdings 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, Ultra Clean Holdings has a P/S ratio of about 0.48. This is a bit lower than the S&P 500 average, which comes in at 2.68x right now. Also, as we can see in the chart below, this is well 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, Ultra Clean Holdings currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Ultra Clean Holdings a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Ultra Clean Holdings is just 0.48, a level that is far lower than the industry average of 2.68. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, UCTT is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Ultra Clean Holdings 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 B. This gives UCTT 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 robust at best. The current quarter has seen one estimate go higher in the past sixty days compared to two lower, while the full year estimate has seen two up and none down in the same time period.
This has had just noticeable impact on the consensus estimate though as the current quarter consensus estimate has risen by 41.9% in the past two months, while the full year estimate has increased by 35%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Ultra Clean Holdings, Inc. Price and Consensus
This somewhat bullish trend is why the stock has just a Zacks Rank #1 (Strong Buy) and why we are looking for in-line performance from the company in the near term.
Ultra Clean Holdings is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Further, a strong industry rank (among Top 24% of more than 250 industries) instills our confidence. However, over the past two years, the Zacks Electronics Manufacturing - Machinery industry has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Ultra Clean Holdings, Inc. (UCTT): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.