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

While the proven Zacks Rank places an emphasis on earnings estimates and estimate revisions to find strong stocks, we also know that investors tend to develop their own individual strategies. With this in mind, we are always looking at value, growth, and momentum trends to discover great companies.

Looking at the history of these trends, perhaps none is more beloved than value investing. This strategy simply looks to identify companies that are being undervalued by the broader market. Value investors use tried-and-true metrics and fundamental analysis to find companies that they believe are undervalued at their current share price levels.

Zacks has developed the innovative Style Scores system to highlight stocks with specific traits. For example, value investors will be interested in stocks with great grades in the "Value" category. When paired with a high Zacks Rank, "A" grades in the Value category are among the strongest value stocks on the market today.

First American Financial (FAF) is a stock many investors are watching right now. FAF is currently sporting a Zacks Rank #2 (Buy), as well as a Value grade of A. The stock is trading with P/E ratio of 11.43 right now. For comparison, its industry sports an average P/E of 26.19. Over the last 12 months, FAF's Forward P/E has been as high as 15.32 and as low as 9.75, with a median of 11.61.

We should also highlight that FAF has a P/B ratio of 1.31. The P/B ratio pits a stock's market value against 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 1.41. 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 preferred metric because revenue can't really be manipulated, so sales are often a truer performance indicator. FAF has a P/S ratio of 0.88. This compares to its industry's average P/S of 1.33.

These are just a handful of the figures considered in First American Financial'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 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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