Credit: Shutterstock photoValue investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn't want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let's put GlaxoSmithKline plcGSK stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock's current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, GlaxoSmithKline has a trailing twelve months PE ratio of 12.8, as you can see in the chart below:
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock's price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, GlaxoSmithKline has a P/S ratio of about 2.3. This is a bit lower than the S&P 500 average, which comes in at 3.4x right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, GlaxoSmithKline currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes GlaxoSmithKline a solid choice for value investors.
What About the Stock Overall?
Though GlaxoSmithKline might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of A and a Momentum Score of C. This gives GSK a Zacks VGM score - or its overarching fundamental grade - of A. (You can read more about the Zacks Style Scores here >> )
Meanwhile, the company's recent earnings estimates have been upbeat. The current year has seen four estimates go higher in the past sixty days, while the next year estimate has seen three up in the same time period.
This has had just a small impact on the consensus estimate though as the current year consensus estimate has risen by 6.1% in the past two months, while the next year estimate has increased 4.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
GlaxoSmithKline PLC Price and Consensus
GlaxoSmithKline PLC Price and Consensus | GlaxoSmithKline PLC Quote
This positive trend signifies bullish analyst sentiment, and its Zacks Rank #2 (Buy) indicates robust fundamentals and expectations of outperformance in the near term.
Bottom Line
GlaxoSmithKline is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Further, a strong industry rank (among Top 19% of more than 250 industries) and a Zacks Rank #2, instill investor confidence.
However, over the past two years, the broader industry has clearly underperformed the market at large, as you can see below:
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GlaxoSmithKline PLC (GSK): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
