While the proven Zacks Rank places an emphasis on earnings estimates and estimate revisions to find strong stocks, we also know that investors tend to develop their own individual strategies. With this in mind, we are always looking at value, growth, and momentum trends to discover great companies.
Considering these trends, value investing is clearly one of the most preferred ways to find strong stocks in any type of market. Value investors use a variety of methods, including tried-and-true valuation metrics, to find these stocks.
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 company to watch right now is ADT (ADT). ADT is currently holding a Zacks Rank of #2 (Buy) and a Value grade of A.
Another valuation metric that we should highlight is ADT's P/B ratio of 2.66. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. ADT's current P/B looks attractive when compared to its industry's average P/B of 3.18. ADT's P/B has been as high as 2.66 and as low as 1.66, with a median of 2.10, over the past year.
Value investors also use the P/S ratio. The P/S ratio is 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. ADT has a P/S ratio of 1.44. This compares to its industry's average P/S of 2.22.
Finally, we should also recognize that ADT has a P/CF ratio of 4.66. This data point considers a firm's operating cash flow and is frequently used to find companies that are undervalued when considering their solid cash outlook. ADT's P/CF compares to its industry's average P/CF of 17.24. Over the past 52 weeks, ADT's P/CF has been as high as 4.96 and as low as 3.18, with a median of 4.07.
Value investors will likely look at more than just these metrics, but the above data helps show that ADT is likely undervalued currently. And when considering the strength of its earnings outlook, ADT sticks out at as one of the market's strongest value stocks.
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