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 Assurant, Inc. AIZ 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, Assurant has a trailing twelve months PE ratio of 19.31, as you can see in the chart below:
This level actually compares somewhat favorably with the market at large, as the PE for the S&P 500 stands at about 19.86. If we focus on the long-term PE trend, Assurant’s current PE level puts it at the highest level over the past five years, with the number having risen rapidly over the past few months.
The reason for this increase is that over the past few months, the stock’s price has charted a strong growth trajectory while the earnings have declined consistently. Both of these trends have had an inflating effect on the PE ratio. These trends can be clearly seen in the chart below:
The stock’s PE also compares unfavorably with the Zacks classified Insurance-Multiline industry’s trailing twelve months PE ratio, which stands at 15.88. This indicates that the stock is relatively overvalued right now, compared to its peers.
We should also point out that Assurant has a forward PE ratio (price relative to this year’s earnings) of just 14.33, so it is fair to say that a slightly more value-oriented path may be ahead for Assurant stock in the near term.
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, Assurant’s P/CF ratio of 7.97 is significantly lower than the Zacks classified Insurance-Multiline industry average of 17.68, which indicates that the stock is undervalued in this respect.
Broad Value Outlook
In aggregate, Assurant currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes Assurant a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, Assurant has a P/S ratio of about 0.78. This is somewhat lower than the industry’s average, which comes in at 0.94 right now. P/S ratio compares a given stock’s price to its total sales, where a lower reading is generally considered better. Clearly, AIZ is a good choice on the value front from some angles, despite its current high valuation.
What About the Stock Overall?
Though Assurant 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 ‘F’ and a Momentum score of ‘D’. This gives AIZ a Zacks VGM score—or its overarching fundamental grade—of ‘D’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been encouraging. The current quarter and the current year have seen one upward revision in the past sixty days compared to none downward.
This has had a positive impact on the consensus estimate as the current quarter consensus estimate has risen by 15% in the past two months, while the full year estimate has inched higher by 1.1%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Assurant, Inc. Price and Consensus
Despite this positive trend, the stock has a Zacks Rank #3 (Hold), which indicates expectations of in-line performance from the company in the near term.
Assurant 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 40% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past three years, the Zacks Insurance-Multiline industry has clearly underperformed the broader market, as you can see below:
So, investors might want to wait for the stock’s price to come down and the broader factors to turn favorable in this name first, but once that happens, this stock could be a compelling pick.
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