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 Northern Oil and Gas, Inc. NOG 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, Northern Oil and Gas has a trailing twelve months PE ratio of 3.4, 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 17.79. If we focus on the long-term PE trend, Northern Oil and Gas’s current PE level puts it below its midpoint of 7.18 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 Oils-Energy sector’s trailing twelve months PE ratio, which stands at 13.04. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Northern Oil and Gas has a forward PE ratio (price relative to this year’s earnings) of just 4.3, so it is fair to say that a slightly more value-oriented path may be ahead for Northern Oil and Gas 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, Northern Oil and Gas has a P/S ratio of about 0.98. This is a bit lower than the S&P 500 average, which comes in at 3.16x 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, Northern Oil and Gas currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Northern Oil and Gas a solid choice for value investors, and some of its other key metrics make this pretty clear too.
What About the Stock Overall?
Though Northern Oil and Gas 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 A and a Momentum Score of D. This gives NOG 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 dismal at best. The current quarter has seen none estimates go higher in the past sixty days compared to three lower, while the full year estimate has seen none up and three down in the same time period.
This has had a negative impact on the consensus estimate though as the current quarter consensus estimate has dropped by 7.7% in the past two months, while the full year estimate has inched lower by 4.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Northern Oil and Gas, Inc. Price and Consensus
Apart from this somewhat mixed trend, the stock has just a Zacks Rank #3 (Hold) which is why we are looking for in-line performance from the company in the near term.
Northern Oil is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (bottom 36% out of more than 250 Zacks industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks Oil And Gas – Exploration and Production – United States industry has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
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Northern Oil and Gas, Inc. (NOG): Free Stock Analysis Report
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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.