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 XP (XP). XP is currently sporting a Zacks Rank #2 (Buy), as well as a Value grade of A.
We should also highlight that XP has a P/B ratio of 2.7. 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 stock's P/B looks attractive against its industry's average P/B of 3.01. XP's P/B has been as high as 3.08 and as low as 1.60, with a median of 2.34, over the past year.
Finally, we should also recognize that XP has a P/CF ratio of 11.68. This metric takes into account a company's operating cash flow and can be used to find stocks that are undervalued based on their solid cash outlook. XP's current P/CF looks attractive when compared to its industry's average P/CF of 17.29. Within the past 12 months, XP's P/CF has been as high as 12.54 and as low as 6.71, with a median of 9.85.
Value investors will likely look at more than just these metrics, but the above data helps show that XP is likely undervalued currently. And when considering the strength of its earnings outlook, XP 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).