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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 indicators and ratios, many of which are crucial in the process of selecting value stocks. Let’s put Guess, Inc. (GHG – 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 / earnings ratio, or PE for short. It shows us how much investors are willing to pay for every dollar in 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, Guess has a 12-month PE ratio of 7.2, 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 25.8. Also, if we focus on the long term trend of PE, Guess’s current PE level puts it below its midpoint over the past five years.
Image source: Zacks Investment Research
The stock’s PE also compares favorably with the sector’s PE ratio over the past twelve months, which stands at 96.6. At the very least, it indicates that the title is currently relatively undervalued compared to its peers.
Image source: Zacks Investment Research
It’s also worth pointing out that Guess has a futures PE ratio (price to earnings for this year) of just 7.4, which is above the current level. So it’s fair to expect the company’s stock price to rise in the near term.
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 harder to manipulate with accounting tricks than profits.
Right now, Guess has a P / S ratio of 0.6. That’s below the S&P 500 average, which currently sits at 5.1. Also, as we can see in the chart below, these are slightly the highs for 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, Guess currently has an A value score, which places him in the top 20% of all stocks we cover from this look. This makes Guess a solid choice for value investors.
What about the stock as a whole?
While Guess can be a good choice for value investors, there are many other factors to consider before investing in this name. In particular, it should be noted that the company has a Growth score of A and a Momentum score of C. This gives GES a Zacks VGM score – or its overall fundamental score – of A. (You can read more at Zacks style scores here >>).
Meanwhile, the company’s recent earnings estimates have been robust at best. Its current fiscal year and fiscal year 2022 estimate have seen three upward movements and no downward movement in the past two months.
This had a noticeable impact on the consensus estimate, as the consensus estimate for the current year and the next year increased by 14.7% and 13.6%, respectively, in the past two months. . You can see the trend of the consensus estimate and recent stock price development in the chart below:
Despite an uptrend, GES carries a Zacks Rank # 3 (Hold). This indicates that analysts have concerns about the stock in the immediate future. Thus, we are looking for short term business online performance.
Final result
Guess is an inspired choice for value investors, as its incredible range of stats is hard to beat on this front. Additionally, a strong industry ranking (top 7%) further supports the stock’s growth potential. However, with a rank 3 of Zacks, it’s hard to get too excited about this business as a whole. Additionally, over the past couple of years, the industry as a whole has clearly underperformed the market as a whole, as you can see below:
Image source: Zacks Investment Research
So despite a Zacks Rank # 3, we believe that bullish analyst sentiment and industry support factors make this value stock a compelling choice.
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