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 Reliance Steel & Aluminum Co. RS 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, Reliance Steel & Aluminium has a trailing twelve months PE ratio of 18.4, as you can see in the chart below:
This level actually compares slightly favorably with the market at large, as the PE for the S&P 500 stands at about 19.9.
If we focus on the long-term PE trend, Reliance Steel & Aluminium’s current PE level puts it near its historical highs. The current PE is also well above its midpoint over the past five years, with the number having risen rapidly over the past few months.
However, the stock’s PE does not compare favorably with the Zacks classified Metal Products-Distribution industry’s trailing twelve months PE ratio, which stands at 10.7. This indicates that the stock is relatively overvalued right now, compared to its peers.
We should also point out that Reliance Steel & Aluminium has a forward PE ratio (price relative to this year’s earnings) of just 14.67, so it is fair to say that a slightly more value-oriented path may be ahead for this 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, Reliance Steel & Aluminium has a P/S ratio of about 0.7. This is significantly lower than the S&P 500 average, which comes in at 3.0 right now. However, as we can see in the chart below, this is at par with the highs for this stock in particular over the past few years.
RS is actually in the higher zone of its trading range in the time period per the 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, Reliance Steel & Aluminium 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 Reliance Steel & Aluminium a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Reliance Steel & Aluminium is just 1.63, a level that is far lower than the industry average of 2.29. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, RS is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Reliance Steel & Aluminium 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 ‘B’ and a Momentum score of ‘C’. This gives RS 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 trending up. Both the current quarter and the current year has seen two estimates go higher in the past thirty days compared to one lower. This has had a positive impact on the consensus estimate though as the current quarter consensus estimate has risen by 1.4% in the past one month, while the full year estimate has inched up by 0.2%. You can see the consensus estimate trend and recent price actionfor the stock in the chart below:
This somewhat bullish trend is why the stock has just a Zacks Rank #2 (Buy) and why we are expecting outperformance from the company in the near term.
Reliance Steel & Aluminium 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 10%) and a solid Zacks Rank, the company deserves attention right now. 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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