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 Deluxe Corporation DLX 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, Deluxe has a trailing twelve months PE ratio of 15.15, 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 20.32. If we focus on the long-term PE trend, Deluxe’s current PE level puts it above its midpoint over the past five years, with the number having risen rapidly over the past few months.
However, the stock’s PE compares unfavorably with the Zacks classified Business – Office Products industry’s trailing twelve months PE ratio, which stands at 14.94. This indicates that the stock is relatively overvalued right now, compared to its peers.
Nonetheless, Deluxe has a forward PE ratio (price relative to this year’s earnings) of just 14.12, so it is fair to say that a slightly more value-oriented path may be ahead for Deluxe stock 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, Deluxe has a P/S ratio of about 1.99. This is quite a bit lower than the S&P 500 average, which comes in at 3.13 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.
However, Deluxe is actually trading near the higher end of its range in the time period from a P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
Broad Value Outlook
In aggregate, Deluxe 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 Deluxe a solid choice for value investors.
What About the Stock Overall?
Though Deluxe 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 ‘D’. This gives DLX 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 somewhat optimistic. The current quarter has seen no estimates go higher or lower in the past thirty days, while the full year estimate has seen one upward revision and no downward revision in the same time period.
This has had just a small impact on the consensus estimate though as the current quarter consensus estimate have increased by 1.7% in the past one month, while the full year estimate has also inched higher by 0.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Deluxe Corporation Price and Consensus
Deluxe Corporation Price and Consensus | Deluxe 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
Deluxe’sstrong Zacks Rank and bullish estimate revisions indicate robust growth potential in the near future. However, the company’s prospects might be constrained due to adverse broader factors, as it has a sluggish industry rank (Bottom 13% out of more than 250 industries).
Despite somewhat negative broader factors, the fact remains that Deluxe is a strong value proposition, and bullish analyst sentiment further supports our case.
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