Advertisement
New Zealand markets closed
  • NZX 50

    12,105.29
    +94.63 (+0.79%)
     
  • NZD/USD

    0.5987
    +0.0011 (+0.19%)
     
  • NZD/EUR

    0.5538
    +0.0005 (+0.10%)
     
  • ALL ORDS

    8,153.70
    +80.10 (+0.99%)
     
  • ASX 200

    7,896.90
    +77.30 (+0.99%)
     
  • OIL

    83.11
    -0.06 (-0.07%)
     
  • GOLD

    2,254.80
    +16.40 (+0.73%)
     
  • NASDAQ

    18,254.69
    -26.15 (-0.14%)
     
  • FTSE

    7,952.62
    +20.64 (+0.26%)
     
  • Dow Jones

    39,807.37
    +47.29 (+0.12%)
     
  • DAX

    18,492.49
    +15.40 (+0.08%)
     
  • Hang Seng

    16,541.42
    +148.58 (+0.91%)
     
  • NIKKEI 225

    40,369.44
    +201.37 (+0.50%)
     
  • NZD/JPY

    90.4620
    +0.0690 (+0.08%)
     

Should Value Investors Pick Jazz Pharmaceuticals (JAZZ) Stock?

Value 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 Jazz Pharmaceuticals plc JAZZ 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, Jazz Pharmaceuticals has a trailing twelve months PE ratio of 17.2, as you can see in the chart below:

This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 compares in at about 21.3. If we focus on the stock’s long-term PE trend, the current level puts Jazz Pharmaceuticals’ current PE ratio slightly below its midpoint (which is 19.7) over the past five years.

Further, the stock’s PE also compares favorably with the industry’s trailing twelve months PE ratio, which stands at 56.6. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that Jazz Pharmaceuticals has a forward PE ratio (price relative to this year’s earnings) of just 11.6, so it is fair to say that a slightly more value-oriented path may be ahead for Jazz Pharmaceuticals’ stock in the near term too.

P/CF Ratio

An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.

The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.

In this case, Jazz Pharmaceuticals’ P/CF ratio of 13.3 is somewhat lower than the industry average of 16.5, which indicates that the stock is somewhat undervalued in this respect.

Broad Value Outlook

In aggregate, Jazz Pharmaceuticals currently has a Value Style Score of B, putting it into the top 40% of all stocks we cover from this look. This makes JAZZ a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the PEG ratio for Jazz Pharmaceuticals is just 0.7, a level that is slightly lower than the industry average of 1.6. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Additionally, its P/CF ratio (another great indicator of value) comes in at 11.6, which is somewhat better than the industry average of 13.6. Clearly, JAZZ is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Jazz Pharmaceuticals 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 grade of B and a Momentum score of D. This gives JAZZ a VGM score—or its overarching fundamental grade—of B. (You can read more about the Zacks Style Scores here >>)

ADVERTISEMENT

Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen two estimates go higher in the past sixty days and three lower, while the full year estimate has seen eight upward and four downward revisions in the same time period.

This has had a noticeable impact on the consensus estimate, as the current quarter consensus estimate has fallen about 2.8% in the past two months, while the full year estimate has nudged up 1.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Jazz Pharmaceuticals PLC Price and Consensus

 

Jazz Pharmaceuticals PLC Price and Consensus | Jazz Pharmaceuticals PLC Quote

This mixed trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.

Bottom Line

Jazz Pharmaceuticals is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (bottom 22% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past one year, the sector has clearly underperformed the broader market, as you can see below:

So, value investors might want to wait for estimates, analyst sentiment and broader factors to turn favorable in this name first, but once that happen, this stock could be a compelling pick.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Jazz Pharmaceuticals PLC (JAZZ) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.