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 PPL Corporation (NYSE:PPL) 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, PPL Corporation has a trailing twelve months PE ratio of 13.5, 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 21.9. If we focus on the stock’s long-term PE trend, the current level puts PPL Corporation’s current PE ratio tad below its midpoint 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 19. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that PPL Corporation has a forward PE ratio (price relative to this year’s earnings) of just 13.3, which is roughly in line with the current level. Hence the forward earnings estimates are already incorporated in the company’s current share price.
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, PPL Corporation has a P/S ratio of about 2.9, which is lower than its industry’s average of 7.5 right now.
If anything, this suggests some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, PPL Corporation 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 PPL Corporation 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 PPL Corporation (another great indicator of value) comes in at 7.9, which is lower than the industry average of 9. Clearly, PPL is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though PPL Corporation 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 D and a Momentum score of D. This gives PPL a Zacks VGM score—or its overarching fundamental grade—of C. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been encouraging. The current quarter has seen no estimate go higher or lower in the past sixty days, while the full year estimate has seen one upward and no downward revisions in the same time period.
The current quarter consensus estimate has increased 2% in the past two months, while the full year estimate has increased 0.5%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
PPL Corporation Price and Consensus
This bullish trend is why the stock boasts a Zacks Rank #2 (Buy) and why we are expecting outperformance from the company in the near term.
Bottom Line
PPL Corporation 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 (among bottom 27%) it is hard to get too excited about this company overall. In fact, over the past two years, its industry has underperformed the broader market, as you can see below:
So, value investors might want to wait for broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.
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PPL Corporation (PPL): Free Stock Analysis Report
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