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 Ashtead Group plcASHTY 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, Ashtead has a trailing twelve months PE ratio of 18.4, 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 19.5. If we focus on the long-term PE trend, Ashtead's current PE level puts it above its midpoint over the past two years.
Further, the stock's PE also compares favorably with the industry's trailing twelve months PE ratio, which stands at 20.3. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Ashtead has a forward PE ratio (price relative to this year's earnings) of just 12.6, so it is fair to say that a slightly more value-oriented path may be ahead for Ashtead 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, Ashtead has a P/S ratio of about 3.8. This is marginally higher than the S&P 500 average, which comes in at 3.4 right now. Nonetheless, as we can see in the chart below, this is slightly below the highs for this stock in particular over the past few years.
ASHTY is actually in the higher zone of its trading range in the time period per the P/S metric, which suggests that the company's stock price has already appreciated to some degree, relative to its sales.
Broad Value Outlook
In aggregate, Ashtead 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 Ashtead a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Ashtead is just 0.8, a level that is lower than the industry average of 1.4. 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 9.8, which is far better than the industry average of 13.0. Clearly, ASHTY is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Ashtead 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 C and a Momentum score of C. This gives ASHTY a Zacks VGM score-or its overarching fundamental grade-of B. (You can read more about the Zacks Style Scores here >> )
Meanwhile, the company's recent earnings estimates have been trending higher. The current fiscal year as well as the next year has seen one estimate go higher in the past sixty days compared to none lower.
As a result, the current fiscal year consensus estimate has risen by 2.4% in the past two months, while the next year estimate has increased 2.7%.
This bullish trend is why the stock boasts a Zacks Rank #1 (Strong Buy) and why we are expecting outperformance from the company in the near term.
Ashtead is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Boasting a good industry rank (among the top 5%) and a top Zacks Rank, the company deserves attention right now. In fact, over the past one year, the 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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