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Great Plains Energy: Should Value Investors Consider GXP 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 Great Plains Energy Inc GXP 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, Great Plains Energy has a trailing twelve months PE ratio of 15.39, 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 20.05. If we focus on the long-term PE trend, Great Plains Energy’s current PE level puts it below its midpoint over the past five years.



However, the stock’s PE compares unfavorably with the Zacks classified Utility-Electric Power industry trailing twelve months PE ratio, which stands at 13.97. At the very least, this indicates that the stock is relatively overvalued right now, compared to its peers.



We should also point out that Great Plains Energy has a forward PE ratio (price relative to this year’s earnings) of 15.86, so it is fair to expect a slight 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, GXP has a P/S ratio of about 2.24. This is lower than the S&P 500 average, which comes in at 3.11 right now. Also, as we can see in the chart below, this is around its highs in particular over the past few years.



If anything, Great Plains Energy is towards the higher end of its range in the time period from a P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.

Broad Value Outlook

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

For example, its PEG ratio comes in at 3.17, which is slightly better than the industry average of 3.25. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate.

What About the Stock Overall?

Though Great Plains Energy 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 ‘D’ and a Momentum score of ‘B’. This gives GXP 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 estimate has been mixed at best. The current year has seen two upward and no downward estimate revision in the past thirty days, while the next year has seen one upward and downward estimate revision in the same time frame.

As a result, the current year consensus estimate has moved up by 1.1% in the past one month, while the next year estimate has inched lower by 1.7%.You can see the consensus estimate trend and recent price action for the stock in the chart below:

Great Plains Energy Inc 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

Great Plains Energy is an inspired choice for value investors, as it is hard to beat its good lineup of statistics on this front. However, the stock belongs to an industry which is ranked among the bottom 37% (out of more than 250 industries), indicating that broader factors are unfavorable for the company. In fact, over the past one year, the Zacks Utility-Electric Power 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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