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 Pilgrim's Pride Corporation PPC 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, Pilgrim's Pride has a trailing twelve months PE ratio of 11.17, 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 19.72. If we focus on the long-term PE trend, current PE level of Pilgrim's Pride puts it above its midpoint over the past five years.
Further, the stock’s PE also compares favorably with the Zacks classified Food-Meat Products industry’s trailing twelve months PE ratio, which stands at 15.73. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Pilgrim's Pride has a forward PE ratio (price relative to this year’s earnings) of just 10.35, so it is fair to say that a slightly more value-oriented path may be ahead for Pilgrim's Pride stock in the near term too.
P/CF Ratio
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
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. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, P/CF ratio of Pilgrim's Pride is 7.98 which is considerably lower than the Zacks classified Food-Meat Products industry average of 12.7, which indicates that the stock is undervalued in this respect.