Should Value Investors Pick Johnson Matthey (JMPLY) 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 Johnson Matthey (LON:JMAT) Plc (OTC:JMPLY) 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, Johnson Matthey has a trailing twelve months PE ratio of 13.71, 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 stands at about 20.34. If we focus on the long-term PE trend, Johnson Matthey’s current PE level puts it below its midpoint over the past five years, with the number remaining more or less stable over the past few months. Moreover, the current level is fairly below the highs for this stock, suggesting it might be a good entry point.



Further, the stock’s PE also compares favorably with the Zacks classified Chemical - Diversified industry’s trailing twelve months PE ratio, which stands at 16.78. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.



We should also point out that Johnson Matthey has a forward PE ratio (price relative to this year’s earnings) of just 12.93, so it is fair to say that a slightly more value-oriented path may be ahead for Johnson Matthey 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, Johnson Matthey has a P/S ratio of about 0.46. This is significantly lower than the S&P 500 average, which comes in at 3.16 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.



If anything, JMPLY is towards 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, Johnson Matthey 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 Johnson Matthey a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, its P/CF ratio (another great indicator of value) comes in at 9.64, which is far better than the industry average of 11.32. 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. Clearly, JMPLY is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Johnson Matthey 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 ‘C’. This gives JMPLY 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 not been very encouraging. The current fiscal year has seen one estimate go higher in the past sixty days compared to none lower, while the next fiscal year estimate has seen no revisions in the same time period.

Consequently, the current fiscal year consensus estimate has risen by 2.5% in the past two months, while the next fiscal year estimate has decreased nearly 2%.

The stock currently has a Zacks Rank #4 (Sell) and this is the reason we fear that the company might disappoint in the near term.

Bottom Line

Johnson Matthey is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Despite having a Zacks Rank #4, the stock belongs to an industry which is ranked among the Top 9%, which indicates that broader factors are favorable for the company. In fact, over the past one year, the Zacks Chemical - Diversified industry has outperformed the broader market, as you can see below:



However, given the mixed trend in earnings estimate revisions, value investors might want to wait for estimates and analyst sentiment to turn favorable in this name first, but once that happens, this stock could be a compelling pick.

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