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Is DDR Corp. 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 DDR Corp. DDR 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, DDR Corp. has a trailing twelve months PE ratio of 7.51, 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 19.97. If we focus on the long-term PE trend, DDR Corp.’s current PE level puts it much below its midpoint of 14.79 over the past five years. In fact, the current level stands close to the lows for the stock, highlighting that it could be a superb entry point.



Further, the stock’s PE also compares favorably with the Zacks classified Finance sector’s trailing twelve months PE ratio, which stands at 14.72. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.



We should point out that DDR Corp. has a forward PE ratio (price relative to this year’s earnings) of 8.52, so it is fair to expect an increase in the company’s share price in the near future.

P/CF Ratio

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, DDR Corp.’s P/CF ratio of 10.02 is lower than the Zacks classified REIT – Equity Trust – Retail industry average of 16.46, which indicates that the stock is undervalued from this aspect as well.



Broad Value Outlook

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

For example, the PEG ratio for DDR Corp. is just 1.70, a level that is lower than the industry average of 2.52. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, DDR is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though DDR Corp. 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 and Momentum score of ‘C’, each. This gives DDR 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 somewhat mixed. The current quarter has seen one estimate go higher in the past thirty days compared to no downward revisions, while the full year estimate has seen no upward revisions and five downward revisions in the same time period.

This has had a mixed impact on the consensus estimate though as the current quarter consensus estimate has remained flat in the past two months, while the full year estimate has slipped 1.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

DDR Corp. Price and Consensus

DDR Corp. Price and Consensus | DDR Corp. Quote


This mixed trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.

Bottom Line

DDR Corp. 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 26% out of over 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past one year, the Zacks classified REIT – Equity Trust – Retail industry has clearly underperformed the broader market, as you can see below:



So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.

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