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.
Of these, perhaps no stock market trend is more popular than value investing, which is a strategy that has proven to be successful in all sorts of market environments. 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.
IBM (IBM) is a stock many investors are watching right now. IBM is currently holding a Zacks Rank of #2 (Buy) and a Value grade of A. The stock is trading with a P/E ratio of 10.17, which compares to its industry's average of 10.48. IBM's Forward P/E has been as high as 11.04 and as low as 8.18, with a median of 10.05, all within 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. IBM has a P/S ratio of 1.54. This compares to its industry's average P/S of 1.77.
Finally, we should also recognize that IBM has a P/CF ratio of 9.06. This metric takes into account a company's operating cash flow and can be used to find stocks that are undervalued based on their solid cash outlook. IBM's P/CF compares to its industry's average P/CF of 10.42. IBM's P/CF has been as high as 9.82 and as low as 7.74, with a median of 9.17, all within the past year.
Value investors will likely look at more than just these metrics, but the above data helps show that IBM is likely undervalued currently. And when considering the strength of its earnings outlook, IBM sticks out at as one of the market's strongest value stocks.
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