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Is Michaels Companies (MIK) a Suitable Value Pick Right Now?


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 The Michaels Companies, Inc. MIK 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, Michaels Companies has a trailing twelve months PE ratio of 9.80. This level compares widely favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.39.

If we focus on the long-term trend of the stock, the current level puts Michaels Companies’ current PE among its lowest territory over the observed period. This suggests that the stock is undervalued compared to its own historical levels and thus it could prove to be an extremely suitable entry point from a PE perspective.

Further, the stock’s PE also compares favorably with the Zacks classified Retail – Miscellaneous industry’s trailing twelve months PE ratio, which stands at 16.66. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers. In fact, the stock has always traded cheaper in comparison to its peers, in terms of the PE metric.

We should also point out that Michaels Companies has a forward PE ratio (price relative to this year’s earnings) of just 8.85 – lower than the current figure. So it is fair to say that a slightly more value-oriented path may be ahead for Michaels Companies stock in the near term too.

PS 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, Michaels Companies has a P/S ratio of about 0.69. This is lower than the Zacks categorized Retail – Miscellaneous industry average, which comes in at 0.90 right now.

If anything, MIK 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, Michaels Companies 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 Michaels Companies a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the PEG ratio for Lowe’s is just 0.55, a level that is far lower than the industry average of 1.16. 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 5.95, which is better than the industry average of 7.98. Clearly, MIK is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Michaels Companies 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 ‘A’ and a Momentum score of ‘F’. This gives MIK a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)

Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics, and a good VGM score can increase your odds of success. All things considered, Michaels Companies seems to have pretty striking prospects.

However, the company’s recent earnings estimates have been trending downwards lately. The current quarter has seen no estimates go higher in the past thirty days compared to four lower, while the full year estimate has seen no upward revision and five downward revisions in the same time period.

This has had a meaningful impact on the consensus estimate as the current quarter consensus estimate has declined 15.8%, while the full year estimate has moved down nearly 2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

The Michaels Companies, Inc. Price and Consensus

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

Bottom Line

Michaels Companies is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, although boasting of a strong industry rank (Top 33% out of more than 250 industries), the company’s Zacks Rank #3 somewhat dims the sparkle. So, value investors might want to wait for analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.

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