Should Value Investors Buy First American Financial (FAF) Stock?

The proven Zacks Rank system focuses on earnings estimates and estimate revisions to find winning stocks. Nevertheless, we know that our readers all have their own perspectives, so we are always looking at the latest trends in value, growth, and momentum to find strong picks.

Considering these trends, value investing is clearly one of the most preferred ways to find strong stocks in any type of market. Value investors rely on traditional forms of analysis on key valuation metrics to find stocks that they believe are undervalued, leaving room for profits.

On top of the Zacks Rank, investors can also look at our innovative Style Scores system to find stocks with specific traits. For example, value investors will want to focus on the "Value" category. Stocks with high Zacks Ranks and "A" grades for Value will be some of the highest-quality value stocks on the market today.

One stock to keep an eye on is First American Financial (FAF). FAF is currently sporting a Zacks Rank #2 (Buy) and an A for Value. The stock is trading with P/E ratio of 11.43 right now. For comparison, its industry sports an average P/E of 26.82. Over the past year, FAF's Forward P/E has been as high as 15.32 and as low as 9.75, with a median of 11.61.

Another notable valuation metric for FAF is its P/B ratio of 1.31. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. This company's current P/B looks solid when compared to its industry's average P/B of 1.43. Over the past 12 months, FAF's P/B has been as high as 1.43 and as low as 1.08, with a median of 1.29.

Value investors also use the P/S ratio. The P/S ratio is calculated as price divided by sales. This is a popular metric because sales are harder to manipulate on an income statement, so they are often considered a better performance indicator. FAF has a P/S ratio of 0.95. This compares to its industry's average P/S of 1.35.

Investors could also keep in mind United Fire Group (UFCS), another Insurance - Property and Casualty stock with a Zacks Rank of #2 (Buy) and Value grade of A.

Additionally, United Fire Group has a P/B ratio of 0.94 while its industry's price-to-book ratio sits at 1.43. For UFCS, this valuation metric has been as high as 1.02, as low as 0.62, with a median of 0.87 over the past year.

These are just a handful of the figures considered in First American Financial and United Fire Group's great Value grade. Still, they help show that the stock is likely being undervalued at the moment. Add this to the strength of its earnings outlook, and we can clearly see that FAF and UFCS is an impressive value stock right now.

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This article originally published on Zacks Investment Research (zacks.com).

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