Is Foot Locker (FL) now an appropriate choice for value investors? – January 11, 2022
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that go unnoticed and are attractive buys, or offer great discounts off their fair value?
One way to find these companies is to look at several key financial metrics and ratios, many of which are crucial in the value stock picking process. Let’s put Walk-in locker (Florida – Free Report) into this equation and find out if this is a good choice for value investors right now, or if investors who subscribe to this methodology should look elsewhere for the best choices:
P / E ratio
A key metric that value investors always look at is the price-to-earnings ratio, or PE for short. It shows us how much investors are willing to pay for every dollar of profit in any given stock, and it’s easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the industry / sector average; and c) how it compares to the market as a whole.
On this front, Foot Locker has a past twelve month PE ratio of 5.5, as you can see in the chart below:
Image source: Zacks Investment Research
This level actually compares quite favorably to the market as a whole, as the PE for the S&P 500 is around 24.3. If we focus on the long term trend of PE, its current level of PE puts it below its midpoint over the past five years.
Image source: Zacks Investment Research
Additionally, the stock’s PE also compares favorably with its industry’s 12-month PE ratio of 29.2. At the very least, it indicates that the title is currently relatively undervalued compared to its peers.
Image source: Zacks Investment Research
We also have to point out that Foot Locker has a futures PE (price to earnings for this year) ratio of just 5.6, so it’s fair to say that a slightly more value-driven path may be ahead for short-term FL stocks as well. .
P / S Ratio
Another key indicator to note is the price / sales ratio. This approach compares the price of a given stock to its total sales, where a lower reading is generally considered better. Some people like this value metric more than others because it looks at sales, something that is much more difficult to manipulate with accounting tricks than profits.
Right now, Foot Locker has a P / S ratio of around 0.5. This is below the S&P 500 average, which currently sits at 5.1. We can see from the graph below that this is below the highs of this particular stock over the past few years.
Image source: Zacks Investment Research
On the contrary, it suggests some level of undervalued trading, at least by historical standards.
Broad value outlook
Overall, Foot Locker currently has an A value score, which places it in the top 20% of all stocks we cover from this look. This makes Foot Locker a solid choice for value investors.
For example, the P / CF ratio (another great indicator of value) stands at 9.28 (which is a bit better than the industry average of 16.43). The PEG ratio (another great indicator of value) sits at 0.17 (which is a bit better than the industry average of 0.91). Obviously, FL is a solid choice in terms of value from several angles.
What about the stock as a whole?
While Foot Locker can be a good choice for value investors, there are many other factors to consider before investing in this name. In particular, it’s worth noting that the company has a Growth Score of C and Momentum Score of A. This gives FL a Zacks VGM score – or its overall fundamental score – of A. (You can read more about it at Zacks style scores here >>)
Meanwhile, the company’s recent earnings estimates have been mixed. The current fiscal quarter has seen three estimates increase and four decrease each in the past sixty days, while the current fiscal year has seen nine estimates increase and none decrease.
This had a mixed effect on the consensus estimate. While the consensus for the current fiscal quarter has fallen 5.9% in the past two months, the estimate for the current fiscal year has improved by 9%. You can see the trend of the consensus estimate and recent stock price development in the chart below:
These mixed feelings from analysts are why the stock is ranked 3 Zacks (hold) and this is why we are looking for short term online performance of the company.
Final result
Foot Locker is an inspired choice for value-oriented investors, as its incredible range of stats is hard to beat on this front. With a strong industry ranking (top 19%), the company deserves attention right now. However, with a slow Zacks ranking, it’s hard to get excited about the business. However, over the past couple of years, the sector has underperformed the overall market, as you can see below:
Image source: Zacks Investment Research
So value investors might want to wait until analyst estimates and sentiment turn around first on this name, but once that happens, this stock could be a compelling choice.
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