Is Clearwater Paper A Great Stock For Value Investors?

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 Clearwater Paper Corporation (NYSE:CLW) 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, Clearwater Paper has a trailing twelve months PE ratio of 16.22, 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 20.17. If we focus on the stock’s long-term PE trend, the current level puts Clearwater Paper’s current PE ratio below its midpoint over the past five years, with the number trending roughly downwards over the past few months.

Further, the stock’s PE also compares favorably with the Zacks classified Paper and Related Products sector’s trailing twelve months PE ratio, which stands at 16.93. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that Clearwater Paper has a forward PE ratio (price relative to this year’s earnings) of 17.49, which is tad higher than the current level. So it is fair to expect an increase in the company’s share price in the near term.

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, Clearwater Paper has a P/S ratio of about 2.57. This is a bit lower than the S&P 500 average, which comes in at 0.45 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.

If anything, CLW is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

In aggregate, Clearwater Paper currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes Clearwater Paper a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the P/CF ratio of Clearwater Paper (another great indicator of value) comes in at 4.25, which is far lower than the industry average of 6.98. Clearly, CLW is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Clearwater Paper 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 ‘B’. This gives CLW 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 favorable. Both the current year and next year has seen one estimate go higher in the past sixty days compared to no lower.

This has had just a small impact on the consensus estimate though as the current year consensus estimate has risen by 7.2% in the past two months, while the full year estimate has witnessed no changes. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Clearwater Paper Corporation Price and Consensus

Clearwater Paper Corporation Price and Consensus | Clearwater Paper Corporation 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

Clearwater Paper is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Furthermore, a strong industry rank (among top 27% of more than 250 industries) and a Zacks Rank #2 instills our confidence on the stock.

On the flipside, over the past two years, the Zacks Paper and Related Products industry has clearly underperformed the broader market, as you can see below:

Despite an unsatisfactory past industry performance, a good industry and Zacks rank signal that the stock is likely to benefit from favorable broader factors in the immediate future. Add to this robust value metrics, and we believe that we have a strong value contender in Clearwater Paper.

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