Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.
Of these, value investing is easily one of the most popular ways to find great stocks in any market environment. Value investors use tried-and-true metrics and fundamental analysis to find companies that they believe are undervalued at their current share price levels.
Zacks has developed the innovative Style Scores system to highlight stocks with specific traits. For example, value investors will be interested in stocks with great grades in the "Value" category. When paired with a high Zacks Rank, "A" grades in the Value category are among the strongest value stocks on the market today.
One company to watch right now is Peabody Energy (BTU). BTU is currently sporting a Zacks Rank of #1 (Strong Buy), as well as a Value grade of A.
Another valuation metric that we should highlight is BTU's P/B ratio of 0.93. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. This stock's P/B looks attractive against its industry's average P/B of 1.57. Over the past 12 months, BTU's P/B has been as high as 1.73 and as low as 0.74, with a median of 1.06.
Value investors also use the P/S ratio. The P/S ratio is is calculated as price divided by sales. Some people prefer this metric because sales are harder to manipulate on an income statement. This means it could be a truer performance indicator. BTU has a P/S ratio of 0.61. This compares to its industry's average P/S of 0.97.
Finally, we should also recognize that BTU has a P/CF ratio of 2.19. This data point considers a firm's operating cash flow and is frequently used to find companies that are undervalued when considering their solid cash outlook. This stock's P/CF looks attractive against its industry's average P/CF of 3.40. Within the past 12 months, BTU's P/CF has been as high as 3.75 and as low as 1.45, with a median of 2.33.
These are just a handful of the figures considered in Peabody Energy's great Value grade. Still, they help show that the stock is likely being undervalued at the moment. Add this to the strength of its earnings outlook, and we can clearly see that BTU is an impressive value stock right now.
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