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.
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 a variety of methods, including tried-and-true valuation metrics, to find these stocks.
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 ADT (ADT). ADT is currently sporting a Zacks Rank #2 (Buy), as well as an A grade for Value. The stock is trading with a P/E ratio of 9.49, which compares to its industry's average of 14.51. Over the past year, ADT's Forward P/E has been as high as 10.52 and as low as 8.31, with a median of 9.41.
Another valuation metric that we should highlight is ADT's P/B ratio of 1.95. 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 company's current P/B looks solid when compared to its industry's average P/B of 4.75. ADT's P/B has been as high as 2.01 and as low as 1.56, with a median of 1.82, over the past year.
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. ADT has a P/S ratio of 1.08. This compares to its industry's average P/S of 2.09.
Value investors will likely look at more than just these metrics, but the above data helps show that ADT is likely undervalued currently. And when considering the strength of its earnings outlook, ADT sticks out as one of the market's strongest value stocks.
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This article originally published on Zacks Investment Research (zacks.com).