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.
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 fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.
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 Encore Capital Group (ECPG) . ECPG is currently holding a Zacks Rank of #2 (Buy) and a Value grade of A. The stock has a Forward P/E ratio of 5.25. This compares to its industry's average Forward P/E of 8.48. Over the last 12 months, ECPG's Forward P/E has been as high as 9.37 and as low as 4.14, with a median of 6.42.
Value investors also use the P/S ratio. The P/S ratio is is calculated as price divided by sales. This is a prefered metric because revenue can't really be manipulated, so sales are often a truer performance indicator. ECPG has a P/S ratio of 0.65. This compares to its industry's average P/S of 1.4.
Value investors will likely look at more than just these metrics, but the above data helps show that Encore Capital Group is likely undervalued currently. And when considering the strength of its earnings outlook, ECPG sticks out at as one of the market's strongest value stocks.
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This article originally published on Zacks Investment Research (zacks.com).
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