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Should Value Investors Pick RAIT Financial Trust (RAS) Stock?

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 RAIT Financial Trust RAS 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, RAIT Financial has a trailing twelve months PE ratio of 4.11, 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, RAIT Financial’s current PE level puts it below its midpoint over the past three years.



Further, the stock’s PE also compares favorably with the Zacks classified REIT-Equity Trust-Other industry trailing twelve months PE ratio, which stands at 15.33. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.



We should also point out that RAIT Financial has a forward PE ratio (price relative to this year’s earnings) of 12.27, so it is fair to expect an increase in the company’s share price in the near future.

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, RAIT Financial has a P/S ratio of 1.07. This is lower than the S&P 500 average, which comes in at 3.10 right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years.



If anything, RAS 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, RAIT 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 RAIT Financial a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, its P/CF ratio comes in at 3.34, which is far better than the industry average of 14.53. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. Clearly, RAS is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though RAIT 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 RAS 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 estimate has been mixed at best. The current quarter and year has seen one upward and downward estimate revision in the past thirty days.

As a result, the current quarter consensus estimate has remained stable in the past one month, while the full year estimate has inched higher by 26.7%.You can see the consensus estimate trend and recent price action for the stock in the chart below:

RAIT Financial Trust Price and Consensus

This somewhat 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

RAIT Financial is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, the stock belongs to an industry which is ranked among the Bottom 34%(out of more than 250 industries), indicating that broader factors are unfavorable for the company. In fact, over the past one year, the Zacks REIT-Equity Trust-Other industry has clearly underperformed the broader market, as you can see below:



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

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