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Does Roche Holding (RHHBY) Look to be a Great Value Pick?

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 Roche Holding AG RHHBY 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, Roche Holding has a trailing twelve months PE ratio of 18.43, 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 20.30. If we focus on the long-term PE trend, Roche Holding ’s current PE level puts it above its midpoint over the past five years.

Further, the stock’s PE also compares favorably with the Zacks classified Medical sector’s trailing twelve months PE ratio, which stands at 16.43. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that Roche Holding has a forward PE ratio (price relative to this year’s earnings) of just 16.83, so it is fair to say that a slightly more value-oriented path may be ahead for Roche Holding stock in the near term too.

PEG Ratio

While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate).The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.

Roche Holding ’s PEG ratio stands at just 1.93 compared with the Zacks Large Cap Pharmaceuticals industry average of 2.17. This suggests a decent undervalued trading relative to its earnings growth potential right now.

Broad Value Outlook

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

For example, its P/CF ratio (another great indicator of value) comes in at 18.24, which is a bit better than the industry average of 18.71. Clearly, RHHBY is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Roche Holding 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 ‘A’. This gives RHHBY 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 current year has seen two estimates going higher in the past thirty days compared to two lower, while the next year estimate has seen one upward and one downward movement in the same time period.

This has had a significant impact on the consensus estimate as the current year consensus estimate has risen by 1.6% in the past one month and the next year estimate has inched up by 0.5%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Roche Holding AG Price and Consensus

Even though Roche Holding has a better estimates trend, the stock has just a Zacks Rank #3 (Hold). That is why we are looking for in-line performance from the company in the near term.

Bottom Line

Roche Holding is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a strong industry rank (Top 20% out of more than 250 industries) further strengthens its growth potential. In fact, over the past two years, the Zacks Computer-Mini industry has clearly underperformed the broader market, as you can see below:

So, despite a Zacks Rank #3, we believe that bullish analyst sentiment and favorable industry factors make this value stock a compelling pick.

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