Is American Equity Investment (AEL) a Great Value Stock?
Zacks Equity Research
Updated
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 American Equity Investment Life Holding Company AEL 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, American Equity Investment has a trailing twelve months PE ratio of 14.96, 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 20.50. While American Equity Investment’s current PE level puts it above its midpoint of 10.21 over the past five years, the current level stands below the highs for the stock – thus leaving scope for entry.
Further, the stock’s PE compares favorably with the Zacks classified Finance sector’s trailing twelve months PE ratio, which stands at 15.85. This indicates that the stock is slightly undervalued right now, compared to its peers.
We should also point out that American Equity Investment has a forward PE ratio (price relative to this year’s earnings) of just 11.06, so it is fair to say that a slightly more value-oriented path may be ahead for American Equity Investment 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, American Equity Investment has a P/S ratio of about 0.91. This is much lower than the S&P 500 average, which comes in at 3.18 right now. Also, as we can see in the chart below, this stands below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, American Equity Investment 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 American Equity Investment 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) for American Equity Investment comes in at 1.49, which is far better than the industry average of 4.40. Clearly, AEL is a solid choice on the value front from multiple angles.
What About the Stock Overall?
While American Equity Investment 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 ‘C’ and a Momentum score of ‘A’. This gives AEL 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. Both, the current quarter and full year have seen one upward and downward estimate revision each, in the past sixty days. This has had a slightly positive impact on the consensus estimate, as the full year estimate has inched higher by 0.8%, while the current quarter consensus estimate has remained stable in the last two months. You can see the consensus estimate trend and recent price action for the stock in the chart below:
American Equity Investment Life Holding Company Price and Consensus
American Equity Investment Life Holding Company Price and Consensus | American Equity Investment Life Holding Company Quote
Given these trends, the stock has just a Zacks Rank #3 (Hold), which indicates why we are looking for in-line performance from the company in the near term.
Bottom Line
American Equity Investment is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Despite having a Zacks Rank #3, the stock belongs to an industry which is ranked among the Top 26%, which indicates that broader factors are favorable for the company. Further, over the past one year, the Zacks categorized Insurance – Life industry’s performance has outperformed the broader market, as you can see below:
So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
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