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 Ameriprise Financial, Inc. AMP 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, Ameriprise Financial has a trailing twelve months PE ratio of 13.57, 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 19.88. While Ameriprise Financial’s current PE level puts it above its midpoint of 12.65 over the past five years, it stands below the highs for the stock, thus leaving scope for entry.
Further, the stock’s PE also compares favorably with the Zacks classified Finance sector’s trailing twelve months PE ratio, which stands at 16.61. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Ameriprise Financial has a forward PE ratio (price relative to this year’s earnings) of just 11.87, so it is fair to say that a more value-oriented path may be ahead for Ameriprise Financial 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, Ameriprise Financial has a P/S ratio of about 1.78. This is a bit lower than the S&P 500 average, which comes in at 2.94 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, AMP 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, Ameriprise Financial 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 Ameriprise Financial a decent choice for value investors.
What About the Stock Overall?
Though Ameriprise Financial 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 AMP a Zacks VGM score—or its overarching fundamental grade—of ‘C’. (You can read more about the Zacks Style Scores here >>)
Nonetheless, the company’s recent earnings estimates have been quite encouraging, as both the current quarter and full year estimates have seen three upward revisions with no downward revisions in the past 60 days.
This has had a meaningful impact on the consensus estimate, as the current quarter consensus estimate has risen by 3.7% in the past two months, while the full year estimate has risen by 3.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This bullish trend is why the stock boasts a Zacks Rank #2 (Buy) and why we are expecting outperformance from the company in the near term.
Ameriprise Financial is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Though the company has a sluggish industry rank (Bottom 45% out of over 250 industries), the Zacks categorized Finance – Investment Management industry has outperformed the broader market in the past one year, and its strong returns in the recent months reflect signs of revival. This is also evident from the chart 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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