Is Ralph Lauren (RL) a Great Stock 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 Ralph Lauren Corporation RL 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, Ralph Lauren has a trailing twelve months PE ratio of 19.8, 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 22.7. If we focus on the long-term PE trend, RL’s current PE level puts it above its midpoint over the past five years, with the number having risen rapidly over the past few months.

Further, the stock’s PE also compares favorably with the Zacks Textile - Apparel industry’s trailing twelve months PE ratio, which stands at 22.2. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that Ralph Lauren has a forward PE ratio (price relative to this year’s earnings) of 20.5, so it is fair to say that the stock price might appreciate in future.

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, RL has a P/S ratio of about 1.5. This is lower than the S&P 500 average, which comes in at 3.6x 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, suggesting some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

In aggregate, Ralph Lauren currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Ralph Lauren a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the Price-to-Cash Flow ratio for RL is 11.9, lower than the industry average of 14. Clearly, Ralph Lauren is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Ralph Lauren 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 B and a Momentum Score of A. This gives RL 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 pretty encouraging. The current quarter has seen three estimates go higher in the past sixty days compared to one lower, while the full year estimate has seen two up and one down in the same time period.

This has had a significant impact on the consensus estimate  as the current quarter consensus estimate has risen by 5.1% in the past two months, while the full year estimate has inched up by 0.7%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Ralph Lauren Corporation Price and Consensus

Ralph Lauren Corporation Price and Consensus | Ralph Lauren Corporation Quote

Despite this bullish trend, the stock has just a Zacks Rank #3 (Hold) and that is why we are looking for better performance from the company in the near term.

Bottom Line

Ralph Lauren is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Boasting a good industry rank (Top 29% out of more than 250 industries), the company deserves attention right now. In fact, over the past six months, the industry has clearly outperformed the broader market, as you can see below:

So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.

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