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 tried-and-true metrics and fundamental analysis to find companies that they believe are undervalued at their current share price levels.
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 Telefonica (TEF). TEF is currently sporting a Zacks Rank #2 (Buy) and an A for Value. The stock holds a P/E ratio of 12.6, while its industry has an average P/E of 20.93. Over the last 12 months, TEF's Forward P/E has been as high as 15.66 and as low as 11.65, with a median of 13.60.
We also note that TEF holds a PEG ratio of 0.57. 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. TEF's PEG compares to its industry's average PEG of 1.35. Within the past year, TEF's PEG has been as high as 0.82 and as low as 0.57, with a median of 0.74.
Another valuation metric that we should highlight is TEF's P/B ratio of 1.25. 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. TEF's current P/B looks attractive when compared to its industry's average P/B of 2.66. Within the past 52 weeks, TEF's P/B has been as high as 1.36 and as low as 0.86, with a median of 1.05.
Value investors also use the P/S ratio. The P/S ratio is calculated as price divided by sales. Some people prefer this metric because sales are harder to manipulate on an income statement. This means it could be a truer performance indicator. TEF has a P/S ratio of 0.69. This compares to its industry's average P/S of 1.22.
These figures are just a handful of the metrics value investors tend to look at, but they help show that Telefonica is likely being undervalued right now. Considering this, as well as the strength of its earnings outlook, TEF feels like a great value stock at the moment.
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Telefonica SA (TEF): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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