Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.
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 stock to keep an eye on is American Eagle Outfitters (AEO). AEO is currently sporting a Zacks Rank #2 (Buy) and an A for Value.
AEO is also sporting a PEG ratio of 0.84. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. AEO's PEG compares to its industry's average PEG of 0.92. Within the past year, AEO's PEG has been as high as 1.05 and as low as 0.65, with a median of 0.89.
Investors should also recognize that AEO has a P/B ratio of 2.12. The P/B is a method of comparing a stock's market value to 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 6.24. Over the past year, AEO's P/B has been as high as 2.54 and as low as 1.05, with a median of 1.48.
Value investors also frequently use the P/S ratio. This metric is found by dividing a stock's price with the company's revenue. Some people prefer this metric because sales are harder to manipulate on an income statement. This means it could be a truer performance indicator. AEO has a P/S ratio of 0.51. This compares to its industry's average P/S of 0.52.
Finally, our model also underscores that AEO has a P/CF ratio of 7.59. This metric focuses on a firm's operating cash flow and is often used to find stocks that are undervalued based on the strength of their cash outlook. This stock's P/CF looks attractive against its industry's average P/CF of 13.88. Within the past 12 months, AEO's P/CF has been as high as 9.27 and as low as 3.36, with a median of 5.12.
These are just a handful of the figures considered in American Eagle Outfitters's great Value grade. Still, they help show that the stock is likely being undervalued at the moment. Add this to the strength of its earnings outlook, and we can clearly see that AEO is an impressive value stock right now.
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