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Is Deutsche Lufthansa A Great Stock For Value Investors?

Published 05/22/2017, 09:50 PM
Updated 07/09/2023, 06:31 AM

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 Deutsche Lufthansa (DE:LHAG) Ag (OTC:DLAKY) 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, Deutsche Lufthansa has a trailing twelve months PE ratio of 4.30, 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. If we focus on the stock’s long-term PE trend, the current level puts Deutsche Lufthansa’s current PE ratio above its midpoint over the past five years, with the number remaining stable over the past few months.

Further, the stock’s PE also compares favorably with the Zacks classified Transportation - Airline sector’s trailing twelve months PE ratio, which stands at 11.37. At the very least, this indicates that the stock is significantly undervalued right now, compared to its peers.

We should also point out that Deutsche Lufthansa has a forward PE ratio (price relative to this year’s earnings) of 6.34, which is higher than the current level. So the stock prices are expected to escalate 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, Deutsche Lufthansa has a P/S ratio of about 0.23. This is a bit lower than the S&P 500 average, which comes in at 3.10 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, DLAKY 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, Deutsche Lufthansa 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 Deutsche Lufthansa a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the P/CF ratio (another great indicator of value) comes in at 3.25, which is far lower than the industry average of 5.10. Clearly, DLAKY is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Deutsche Lufthansa 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 ‘F’ and a Momentum score of ‘B’. This gives DLAKY a Zacks VGM score—or its overarching fundamental grade—of ‘B’. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been mixed encouraging. Both the current year and next year have seen one estimate go higher in the past thirty days compared no movement in the opposite direction.

This has had a substantial impact on the consensus estimate as the current year consensus estimate has risen by 68.8% in the past one month, while the next year estimate has jumped 28.6. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Driven by the bullish analyst sentiments the stock has a Zacks Rank #1 (Strong Buy) and we are looking for an outperformance from the company in the near term.

Bottom Line

Deutsche Lufthansa 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 21% of more than 250 industries) and a Zacks Rank #1 increases our confidence on the stock. In fact, over the past two years, the Zacks Transportation - Airline industry has clearly outperformed the broader market, as you can see below:

So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.

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Deutsche Lufthansa AG (DLAKY): Free Stock Analysis Report

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