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 Johnson Controls International plcJCI 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, Johnson Controls has a trailing twelve months PE ratio of 13.7, as you can see in the chart below:
We should also point out that Johnson Controls has a forward PE ratio (price relative to this year's earnings) of just 12.9, so it is fair to say that a slightly more value-oriented path may be ahead for Johnson Controls' 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, Johnson Controls has a P/S ratio of about 1.1. This is substantially lower than the S&P 500 average, which comes in at 3.4 right now. Also, as we can see in the chart below, this is noticeably 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, Johnson Controls currently has a Value Style Score of B, putting it into the top 40% of all stocks we cover from this look. This makes JCI a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Johnson Controls is just 1.2, a level that is marginally lower than the industry average of 1.6. 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 9.3, which is slightly better than the industry average of 13.6. Clearly, JCI is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Johnson Controls 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 JCI a 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 mixed at best. The full-year 2018 has seen four estimates go higher in the past sixty days and none lower, while the full-year 2019 estimate has seen four upward and one downward revisions in the same time period.
This has had a noticeable impact on the consensus estimate, as the full-year 2018 consensus estimate has inched up 0.7% in the past two months, while the full-year 2019 estimate has dipped 0.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Johnson Controls International plc Price and Consensus
This somewhat mixed trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.
Johnson Controls is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a strong industry rank (top 10% out of more than 250 industries) further supports the growth potential of the stock. However, with a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past one year, the sector has clearly underperformed the broader market, as you can see below:
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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.