Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldnâ€™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. Letâ€™s put Orion Engineered Carbons S.A. OEC 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:
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 stockâ€™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, Orion Engineered Carbons has a trailing twelve months PE ratio of 15.41, 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 27.08. If we focus on the long-term PE trend, Orion Engineered Carbonsâ€™ current PE level puts it above its midpoint (which is 12.53) over the past five years, with the number having risen rapidly over the past few months.
Further, the stockâ€™s PE also compares favorably with the Zacks Basic Materials sectorâ€™s trailing twelve months PE ratio, which stands at 28.26. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Orion Engineered Carbons has a forward PE ratio (price relative to this yearâ€™s earnings) of just 16.43, which is higher than the current level. So, it is fair to expect an increase in the companyâ€™s share price in the near term.
Another key metric to note is the Price/Sales ratio. This approach compares a given stockâ€™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, Orion Engineered Carbons has a P/S ratio of about 0.78. This is a bit lower than the S&P 500 average, which comes in at 4.32x right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
If anything, this suggests some level of undervalued tradingâ€”at least compared to historical norms.
Broad Value Outlook
In aggregate, Orion Engineered Carbons currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Orion Engineered Carbons 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) comes in at 4.37, which is far better than the industry average of 8.59. Clearly, OEC is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Orion Engineered Carbons 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 Score of C and a Momentum Score of C. This gives OEC a Zacks VGM score â€” or its overarching fundamental grade â€” of A. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the companyâ€™s recent earnings estimates have been robust at best. The current quarter has seen one estimates go higher in the past sixty days compared to two lower, while the full year estimate has seen two up and one down in the same time period.
This has had a noticeable impact on the consensus estimate though as the current quarter consensus estimate has risen by 3.6% in the past two months, while the full year estimate has increased by 6.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Orion Engineered Carbons S.A Price and Consensus
Despite this positive trend, the stock has a Zacks Rank #3 (Hold), which indicates expectations of in-line performance from the company in the near term.
Orion Engineered Carbons is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Further, a strong industry rank (among Top 47% of more than 250 industries) instills our confidence. However, over the past two years, the Zacks Chemical – Diversified industry has clearly underperformed the broader market, as you can see below:
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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