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 PACCAR IncPCAR 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, PACCAR has a trailing twelve months PE ratio of 16.90, 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 20.34. While PACCAR's current PE level puts it almost in line with its midpoint over the past five years, the current level stands below the highs for the stock, signaling scope for entry.
However, the stock's PE also compares unfavorably with the Zacks classified Auto-Tires-Trucks sector's trailing twelve months PE ratio, which stands at 11.21. At the very least, this indicates that the stock is relatively overvalued right now, compared to its peers.
We should also point out that PACCAR's forward PE is roughly same as its trailing twelve months value, so we might say that the forward earnings estimates are incorporated in the company's share price as of now. We define forward PE as current price relative to the Zacks Consensus Estimate for the current fiscal year.
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, PACCAR has a P/S ratio of about 1.31. This is quite lower than the S&P 500 average, which comes in at 3.16 right now, which indicates that the stock is undervalued from the P/S aspect too.
Broad Value Outlook
In aggregate, PACCAR 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 PACCAR a good choice for value investors.
What About the Stock Overall?
Though PACCAR 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 'F'. This gives PCAR a Zacks VGM score-or its overarching fundamental grade-of 'C'. (You can read more about the Zacks Style Scores here >> )
Meanwhile, the company's recent earnings estimates have been somewhat encouraging. The current quarter has seen six estimates go higher in the past sixty days compared to two lower, while the full year estimate has seen four up and three down in the same time period.
Notably, this has had a positive impact on the consensus estimate as the current quarter consensus estimate has risen by 2.1% in the past two months, while the full year estimate has climbed 0.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
PACCAR Inc. Price and Consensus
However, industry challenges like stiff competition and higher supply of used trucks remain threats for the stock, which currently carries a Zacks Rank #4 (Sell).
PACCAR is an inspired choice for value investors, given its decent lineup of statistics on this front. However, with a sluggish industry rank (Bottom 18% out of over 250 Zacks industries) and a Zacks Rank #4, it is hard to get too excited about this company overall. Further, the Zacks categorized Auto Manufacturers - Domestic industry has cleary underperformed the broader market in the last two years, as you can see below:
So despite having good value metrics, we find that PACCAR is not a strong value contender at this point, especially in light of its poor Zacks Rank and industry weakness.
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