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 Genesco Inc. GCO 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, Genesco has a trailing twelve months PE ratio of 14.14, 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 19.92. If we focus on the long-term PE trend, Genesco’s current PE level puts it almost at par with its midpoint over the past five years.
Further, the stock’s PE also compares somewhat favorably with the Zacks classified Retail-Apparel/Shoe industry’s trailing twelve months PE ratio, which stands at 14.92. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Genesco has a forward PE ratio (price relative to this year’s earnings) of just 15.55, so it is fair to expect an increase in the company’s share price in the near future.
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, Genesco has a P/S ratio of about 0.42. This is considerably lower than the S&P 500 average, which comes in at 2.98 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.
If anything, GCO is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Genesco 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 Genesco a good choice for value investors.
What About the Stock Overall?
Though Genesco 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 ‘A’. This gives GCO a Zacks VGM score—or its overarching fundamental grade—of ‘C’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen six estimates go lower in the past sixty days compared to none higher, while the full year estimate has seen two upward revisions and none downward revision in the same time frame.
As a result, the current quarter consensus estimate has dipped by 16.5% in the past two months, while the full year estimate has inched higher by 2.6%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Genesco Inc. Price and Consensus
So, value investors might want to wait for estimates, analyst sentiment and broader factors to turn favorable in this name first, but once that happen, this stock could be a compelling pick.
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