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Sprague Resources: Is it a Good Choice for Value Investors?

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 Sprague Resources LPSRLP 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:

PE Ratio

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, Sprague has a trailing twelve months PE ratio of 15.37, 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 19.98. If we focus on the long-term PE trend, Sprague's current PE level puts it above its midpoint over the past two years, with the number having risen rapidly over the past few months.

Further, the stock's PE also compares highly favorably with the Zacks classified Oil Refining & Marketing MLP industry's trailing twelve months PE ratio, which stands at 103.02. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that Sprague has a forward PE ratio (price relative to this year's earnings) of just 8.26, so it is fair to say that a more value-oriented path may be ahead for the stock in the near term too.

P/S Ratio

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, Sprague has a P/S ratio of just 0.25 which is considerably lower than the S&P 500 average, which comes in at 2.99 right now. However, as we can see in the chart below, this is around the highs for this stock in particular over the past few years.

If anything, SRLP is towards the higher end of its range in the time period from a 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, Sprague currently has a Zacks Value Style Score of 'A', putting it into the top 20% of all stocks we cover from this look. This makes Sprague a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, its P/CF ratio (another great indicator of value) comes in at 2.70, which is far better than the industry average of 6.77. Clearly, SRLP is a good choice on the value front from multiple angles.

What About the Stock Overall?

Though Sprague 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 'D' and a Momentum score of 'F'. This gives SRLP 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 not being impressive enough. The current quarter has seen one upward estimate revision in the past sixty days compared to one downward, while the full year estimate has seen no upward revision and one downward in the same time frame.

As a result, the current quarter consensus estimate has dipped by 1.8% in the past two months, while the full year estimate has inched lower by 2.5%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Sprague Resources LP Price and Consensus

Sprague Resources LP Price and Consensus | Sprague Resources LP Quote

In spite of the slightly bearish analyst opinion, the stock's Zacks Rank #2 (Buy) indicates robust fundamentals and expectations of outperformance in the near term.

Bottom Line

Sprague is an inspired choice for value investors, as it is hard to beat its good lineup of statistics on this front, along with Zacks Rank #2. However, with a sluggish industry rank (Bottom 44% out of more than 250 industries) , it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks Oil Refining & Marketing MLP industry has clearly underperformed the broader market, as you can see below:

So, value investors might want to wait for estimates and broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.

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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.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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