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 CoreCivic, Inc. CXW 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, CoreCivic has a trailing twelve months PE ratio of 12.22, 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 compares in at about 20.08. If we focus on the stock’s long-term PE trend, the current level puts CoreCivic’s current PE ratio slightly below its midpoint over the past three years, with the number gradually rising over the past few months.
Further, the stock’s PE also compares favorably with the Zacks classified Finance sector’s trailing twelve months PE ratio, which stands at 16.83. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that CoreCivic has a forward PE ratio (price relative to this year’s earnings) of 14.49, 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, CoreCivic has a P/S ratio of about 2.08. This is somewhat lower than the S&P 500 average, which comes in at 3.28 right now. Also, as we can see in the chart below, this is slightly below the highs for this stock in particular over the past few years.
CoreCivic is actually trading around the median level 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, CoreCivic 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 CoreCivic a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for CoreCivic is just 2.41, a level that is slightly lower than the industry average of 2.84. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Additionally, its P/CF ratio (another great indicator of value) comes in at 9.83, which is slightly better than the industry average of 14.07. Clearly, CoreCivic is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though CoreCivic 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 ‘C’ and a Momentum score of ‘B’. This gives CoreCivic a Zacks VGM score—or its overarching fundamental grade—of ‘B’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been encouraging. The current quarter has seen two estimates go higher in the past sixty days, compared to none lower, while the full year estimate has also seen a similar trend.
This has had a positive impact on the consensus estimate, as the current quarter consensus estimate rose 12% in the past two months, while the full year estimate has risen by 10.9%. 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 #1 (Strong Buy) and why we are expecting outperformance from the company in the near term.
CoreCivic is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Its strong Zacks Rank also indicates robust growth potential in the near future. However, the company’s prospects might be constrained due to adverse broader factors, as it has a sluggish industry rank (Bottom 45% out of more than 250 industries). In fact, over the past one year, the Zacks Reit-Equity Trust – Other sector has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for the broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.
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