Should Value Investors Pick Clearwater Paper (CLW) Stock?

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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?

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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 Clearwater Paper Corporation CLW 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, Clearwater Paper has a trailing twelve months PE ratio of 8.99, as you can see in the chart below:

© Provided by Zacks.com

This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 27.59. If we focus on the long-term PE trend, Clearwater Paper’s current PE level puts it below its midpoint over the past five years. Moreover, the current level is fairly below the highs for this stock, suggesting it might be a good entry point.

© Provided by Zacks.com

Further, the stock’s PE also compares favorably with the sector’s trailing twelve months PE ratio, which stands at 28.66. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

© Provided by Zacks.com

We should also point out that Clearwater Paper has a forward PE ratio (price relative to this year’s earnings) of just 6.94, so it is fair to say that a slightly more value-oriented path may be ahead for Clearwater Paper 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, Clearwater Paper has a P/S ratio of about 0.34. This is significantly lower than the S&P 500 average, which comes in at 4.83 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.

© Provided by Zacks.com

As we can see, the stock is trading at its median value for the time period from a P/S metric. This does not provide us with a conclusive direction as to the relative valuation of the stock in comparison to its historical trend.

Broad Value Outlook

In aggregate, Clearwater Paper 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 Clearwater Paper 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 5.22, which is better than the industry average of 7.26. Clearly, CLW is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Clearwater Paper 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 CLW 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 estimate has seen one upward and no downward revision in the past sixty day’s period.

As a result, the consensus estimate has risen by 17.7% in the past two months. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Clearwater Paper Corporation Price and Consensus

© Provided by Zacks.com Clearwater Paper Corporation Price and Consensus

Clearwater Paper Corporation price-consensus-chart | Clearwater Paper Corporation Quote

This bullish trend is why the stock boasts a Zacks Rank #1 (Strong Buy) and why we are expecting outperformance from the company in the near term.

Bottom Line

Clearwater Paper is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Furthermore, a robust industry rank (among the Top 22%) and a top Zacks Rank instills investor confidence.

However, it is hard to get too excited about this company overall as over the past one year, the industry has underperformed the broader market, as you can see below:

© Provided by Zacks.com

Despite the poor past performance of the industry, a good industry rank signals that the stock is likely to benefit from favorable broader factors in the immediate future. Add to this the positive estimate revisions and robust value metrics, and we believe that we have a strong value contender in Clearwater Paper.

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