Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.
Considering these trends, value investing is clearly one of the most preferred ways to find strong stocks in any type of market. Value investors use a variety of methods, including tried-and-true valuation metrics, to find these stocks.
Luckily, Zacks has developed its own Style Scores system in an effort to find stocks with specific traits. Value investors will be interested in the system's "Value" category. Stocks with both "A" grades in the Value category and high Zacks Ranks are among the strongest value stocks on the market right now.
One stock to keep an eye on is Parsons (PSN). PSN is currently holding a Zacks Rank #2 (Buy) and a Value grade of A.
Another valuation metric that we should highlight is PSN's P/B ratio of 3.34. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. This stock's P/B looks solid versus its industry's average P/B of 4.61. Within the past 52 weeks, PSN's P/B has been as high as 4.98 and as low as 2.32, with a median of 3.12.
Value investors also love the P/S ratio, which is calculated by simply dividing a stock's price with the company's sales. This is a preferred metric because revenue can't really be manipulated, so sales are often a truer performance indicator. PSN has a P/S ratio of 0.96. This compares to its industry's average P/S of 1.8.
Finally, investors will want to recognize that PSN has a P/CF ratio of 25.12. This metric focuses on a firm's operating cash flow and is often used to find stocks that are undervalued based on the strength of their cash outlook. This stock's P/CF looks attractive against its industry's average P/CF of 39.87. Over the past 52 weeks, PSN's P/CF has been as high as 37.09 and as low as 17.74, with a median of 23.81.
These figures are just a handful of the metrics value investors tend to look at, but they help show that Parsons is likely being undervalued right now. Considering this, as well as the strength of its earnings outlook, PSN feels like a great value stock at the moment.
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This article originally published on Zacks Investment Research (zacks.com).