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 Argan, Inc. AGXstock 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, Argan has a trailing twelve months PE ratio of 18.94 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 19.78. If we focus on the stock’s long-term PE trend, the current level puts Argan’s current PE ratio above its midpoint over the past five years, with the number having risen rapidly over the past few months.
However, the stock’s PE does not give a favorable comparison against the Zacks classified Building Products – Miscellaneous industry’s trailing twelve months PE ratio, which stands at 16.42. This indicates that the stock is relatively overvalued right now, compared to its peers.
Nonetheless, Argan has a forward PE ratio (price relative to this year’s earnings) of just 17.16, so it is fair to say that a slightly more value-oriented path may be ahead for Apple 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, Argan has a P/S ratio of about 1.88. This is a bit lower than the S&P 500 average, which comes in at 2.96 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.
Broad Value Outlook
In aggregate, Argan 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 Argan a solid choice for value investors, and some of its other key metrics make this pretty clear too.
Additionally, its P/CF ratio (another great indicator of value) comes in at 6.44, which is far better than the industry average of 10.61. Clearly, AGX is a solid choice on the value front from multiple
What About the Stock Overall?
Argan might be a good choice for value investors on the ground of other considerable factors as well. In particular, it is worth noting that the company has a Growth grade of ‘A’ and a Momentum score of ‘A’. These together give AGX a great 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 mostly encouraging. The current quarter has seen one estimate go higher in the past sixty days compared to one lower, while the full year estimate has seen two upward revisions and no downward revision in the same time period.
This has had a meaningful impact on the consensus estimate as the current quarter consensus estimate has risen by 2.5% in the past two months and the full year estimate has increased by 12.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
ARGAN INC Price and Consensus
ARGAN INC Price and Consensus | ARGAN INC Quote
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
Argan is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Boasting a favorable industry rank (Top 34% out of more than 250 industries) and a solid Zacks Rank, the company deserves attention right now. Moreover, over the past two years, the Zacks classified Oil and Gas – Refining and Marketing 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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