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Is Sprague Resources (SRLP) Stock a Suitable 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 Sprague Resources LP SRLP 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, Sprague Resources has a trailing twelve months PE ratio of 14.00, 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 20.19. If we focus on the long-term PE trend, Sprague Resources’ current PE level puts it above its midpoint over the past two years. Nonetheless, the current level is significantly below the highs for this stock, suggesting that the stock is undervalued compared to its historical levels.



Further, the stock’s PE also compares favorably with the Zacks classified Oil and Gas – Refining and Marketing – Master Limited Partnerships industry’s trailing twelve months PE ratio, which stands at 50.42. At the very least, this indicates that the stock is significantly undervalued right now, compared to its peers.



We should also point out that Sprague Resources has a forward PE ratio (price relative to this year’s earnings) of just 6.15, so it is fair to say that a slightly more value-oriented path may be ahead for Sprague Resources 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, Sprague Resources has a P/S ratio of about 0.23. This is significantly lower than the S&P 500 average, which comes in at 3.13 right now. As we can see in the chart below, this is only slightly below the highs for this stock in particular over the past few years.



If anything, Sprague Resources 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, Sprague Resources 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 Sprague Resources 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 5.07, which is better than the industry average of 8.55. The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. Clearly, SRLP is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Sprague Resources 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 SRLP 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 mixed at best. The current year has not seen any estimate revisions in the past sixty days, while the next year estimate has seen zero upward and one downward revision in the same time period.

Consequently, the current year consensus estimate has risen by 21.5% in the past two months, while the next year estimate has decreased 1.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Sprague Resources LP Price and Consensus

Sprague Resources LP Price and Consensus | Sprague Resources LP Quote


Despite this somewhat mixed trend, the stock has a Zacks Rank #4 (Sell) and this is why we fear that the company might disappoint in the near term.

Bottom Line

Sprague Resources is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (among the bottom 20%) and a Zacks Rank #4, it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks Oil and Gas – Refining and Marketing – Master Limited Partnerships industry has clearly underperformed the broader market, as you can see below:



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

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