Are Investors Undervaluing Telefonica (TEF) Right Now?

Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.

Of these, value investing is easily one of the most popular ways to find great stocks in any market environment. Value investors use tried-and-true metrics and fundamental analysis to find companies that they believe are undervalued at their current share price levels.

In addition to the Zacks Rank, investors looking for stocks with specific traits can utilize our Style Scores system. Of course, value investors will be most interested in the system's "Value" category. Stocks with "A" grades for Value and high Zacks Ranks are among the best value stocks available at any given moment.

One stock to keep an eye on is Telefonica (TEF). TEF is currently sporting a Zacks Rank of #2 (Buy), as well as an A grade for Value. The stock is trading with P/E ratio of 14.14 right now. For comparison, its industry sports an average P/E of 18.33. Over the past year, TEF's Forward P/E has been as high as 15.66 and as low as 11.65, with a median of 13.44.

Another valuation metric that we should highlight is TEF's P/B ratio of 1.08. 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. TEF's current P/B looks attractive when compared to its industry's average P/B of 2.05. TEF's P/B has been as high as 1.09 and as low as 0.80, with a median of 0.95, over the past year.

Value investors also use the P/S ratio. The P/S ratio is is calculated as price divided by sales. This is a popular metric because sales are harder to manipulate on an income statement, so they are often considered a better performance indicator. TEF has a P/S ratio of 0.6. This compares to its industry's average P/S of 1.43.

These are just a handful of the figures considered in Telefonica'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 TEF is an impressive value stock right now.

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This article originally published on Zacks Investment Research (zacks.com).

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