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Is RWE Aktiengesellschaft (RWEOY) 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 RWE Aktiengesellschaft RWEOY 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, RWE Aktiengesellschaft has a trailing twelve months PE ratio of 16.34, 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 20.05. If we focus on the stock’s long-term PE trend, the current level puts RWE Aktiengesellschaft’s current PE ratio somewhat above its midpoint (which is 12.34) over the past three years.


However, the stock’s PE also compares unfavorably with the Zacks classified Utilities sector’s trailing twelve months PE ratio, which stands at 14.45. At the very least, this indicates that the stock is relatively overvalued right now, compared to its peers.

Nonetheless, we should also point out that RWE Aktiengesellschaft has a forward PE ratio (price relative to this year’s earnings) of just 8.95, so it is fair to say that a slightly more value-oriented path may be ahead for RWE Aktiengesellschaft 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, RWE Aktiengesellschaft has a P/S ratio of about 0.23. This is significantly 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 considerably below the highs for this stock in particular over the past few years.

If anything, this suggests some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

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

For example, the P/CF ratio (another great indicator of value) comes in at 1.82, which is substantially better than the industry average of 7.22. Clearly, RWEOY is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though RWE Aktiengesellschaft 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 ‘A’. This gives RWEOY a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been encouraging. The full-year 2017 has seen two estimates go higher in the past sixty days, compared to none lower, while the full-year 2018 estimate has seen one upward and no downward revisions in the same time period.

This has had a favorable impact on the consensus estimate, as the full-year 2017 consensus estimate has increased 24.7% in the past two months, while the full-year 2018 estimate has soared 78.1%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

RWE AG Price and Consensus

RWE AG Price and Consensus | RWE AG Quote

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.

Bottom Line

RWE Aktiengesellschaft 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 37% out of more than 250 industries). In fact, over the past one year, the Zacks Utility – Electric Power 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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