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 fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.
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.
One company to watch right now is Sonic Automotive (SAH). SAH is currently holding a Zacks Rank #2 (Buy) and a Value grade of A.
We also note that SAH holds a PEG ratio of 0.63. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. SAH's industry currently sports an average PEG of 0.92. Within the past year, SAH's PEG has been as high as 0.74 and as low as 0.44, with a median of 0.53.
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 popular metric because sales are harder to manipulate on an income statement, so they are often considered a better performance indicator. SAH has a P/S ratio of 0.19. This compares to its industry's average P/S of 0.22.
Finally, we should also recognize that SAH has a P/CF ratio of 8.93. This figure highlights a company's operating cash flow and can be used to find firms that are undervalued when considering their impressive cash outlook. SAH's current P/CF looks attractive when compared to its industry's average P/CF of 11.02. Within the past 12 months, SAH's P/CF has been as high as 10.08 and as low as 5.06, with a median of 6.80.
These are only a few of the key metrics included in Sonic Automotive's strong Value grade, but they help show that the stock is likely undervalued right now. When factoring in the strength of its earnings outlook, SAH looks like an impressive value stock at the moment.
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Sonic Automotive, Inc. (SAH): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).