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Is Shinhan Financial a Great Stock for Value Investors?

Zacks

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 Shinhan Financial Group Co Ltd SHG 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:

PE Ratio

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, Shinhan Financial has a trailing twelve months PE ratio of 4.13, 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 20.06. If we focus on the stock’s long-term PE trend, the current level puts Shinhan Financial’s current PE ratio above its midpoint over the past five years, with the number remaining roughly stable over the past few months.

Further, the stock’s PE also compares favorably with the Zacks classified Banks-Foreign sector’s trailing twelve months PE ratio, which stands at 13.90. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that Shinhan Financial has a forward PE ratio (price relative to this year’s earnings) of just 12.86, so it is fair to say that a slightly more value-oriented path may be ahead for Shinhan Financial stock in the near term too.

P/S Ratio

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, Shinhan Financial has a P/S ratio of about 0.87. This is way lower than the S&P 500 average, which comes in at 3.04 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, suggesting some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

In aggregate, Shinhan Financial 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 Shinhan Financial a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the PEG ratio for Shinhan Financial is just 0.47, a level that is far lower than the industry average of 1.72. 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 3.38, which is lower than the industry average of 5.77. Clearly, SHG is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Shinhan 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 ‘C’ and a Momentum score of ‘A’. This gives SHG 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. Both the current year and next year have seen one estimate go higher in the past thirty days compared to no movement in the opposite direction.

This has had just a small impact on the consensus estimate though as the current year consensus estimate has risen by 2.6% in the past one month, while the full year estimate has inched upper by 2.7%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Buoyed by the bullish analyst sentiments, the stock has a Zacks Rank #1 (Strong Buy) and we are looking for outperformance from the company in the near term.

Bottom Line

Shinhan Financial is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Furthermore, a strong industry rank (among Top 19% of more than 250 industries) and a Zacks Rank #1 increases our confidence on the stock.

However, on the flipside over the past two years, the Zacks Banks-Foreign industry has clearly underperformed the broader market, as you can see below:

Despite the poor past performance of the industry, a good industry rank signals that the stock is likely to benefit from favorable broader factors in the immediate future. Add to this the solid Zacks rank, favorable estimate revisions and robust value metrics, and we believe that we have a strong value contender in Amgen.

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