Does Methode Electronics (MEI) Prove To Be A Suitable Value Pick?

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 Methode Electronics, Inc. (NYSE:MEI) 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, Methode Electronics has a trailing twelve months PE ratio of 17.83, 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 20.28. If we focus on the stock’s long-term PE trend, the current level puts Methode Electronics’s current PE ratio below its midpoint over the past five years, with the number having risen rapidly over the past few months.

Further, the stock’s PE also compares favorably with the Zacks classified Electronics - Connectors industry’s trailing twelve months PE ratio, which stands at 25.07. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that Methode Electronics has a forward PE ratio (price relative to this year’s earnings) of just 17.52, so it is fair to say that a slightly more value-oriented path may be ahead for Methode Electronics stock in the near term too.

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, Methode Electronics has a P/S ratio of about 2.03. This is a bit lower than the S&P 500 average, which comes in at 3.08 right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years, suggesting some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

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

For example, its P/CF ratio, great indicator of value, comes in at 11.41, which is far better than the industry average of 14.61. Clearly, MEI is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Methode Electronics 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 ‘A’ and a Momentum score of ‘B’. This gives MEI 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 pretty encouraging. The current quarter has seen three estimates going higher in the past sixty days compared to one lower, while the full year estimate has seen three upward and no downward revisions in the same time period.

This has had a significant impact on the consensus estimate. Although the current quarter consensus estimate has remained flat at 64 cents in the past two months, the full year estimate has increased by 4.6%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Methode Electronics, Inc. Price and Consensus

Methode Electronics, Inc. Price and Consensus | Methode Electronics, Inc. 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

Methode Electronics is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a decent industry rank (Top 46% out of 265 industries) further strengthens its growth potential. In fact, over the past two years, the Zacks Electronics-Connectors industry has clearly outrperformed the broader market, as you can see below:

So, it might pay for value investors to delve deeper into the company’s prospects, as bullish analyst sentiment and favorable broader factors indicate that this stock could be a compelling pick.

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