Is Regal Beloit a Great Stock for Value Investors?

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 Regal Beloit Corporation RBC 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, Regal Beloit has a trailing twelve months PE ratio of 17.04, 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 20.36. While Regal Beloit’s current PE level puts it above its midpoint of 15.32 over the past five years, it stands slightly below the highs for the stock, still signaling some scope for entry.

Further, the stock’s PE also compares favorably with the Zacks classified Industrial Products sector’s trailing twelve months PE ratio, which stands at 22.54. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that Regal Beloit has a forward PE ratio (price relative to this year’s earnings) of just 15.98, so it is fair to say that a slightly more value-oriented path may be ahead for Regal Beloit 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, Regal Beloit has a P/S ratio of about 1.06. This is quite lower than the S&P 500 average, which comes in at 3.09 right now. Also, as we can see in the chart below, this is slightly below the highs for this stock in particular over the past few years.

Broad Value Outlook

In aggregate, Regal Beloit 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 Regal Beloit a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the PEG ratio for Regal Beloit is just 1.45, a level that is far lower than the industry average of 1.77. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Additionally, its P/CF ratio (another great indicator of value) comes in at 6.84, which is far better than the industry average of 8.36. Clearly, RBC is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Regal Beloit 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 ‘C’. This gives RBC a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)

However, the company’s recent earnings estimates have been quite discouraging. The current quarter has seen four estimates go lower in the past sixty days compared to just one upward revision, while the full year estimate has seen five downward and one upward revision in the same time period.

This has had a negative impact on the consensus estimate, as the current quarter consensus estimate has declined by 3% in the past two months, while the full year estimate has inched lower by 1.5%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

In light of these bearish trends, the stock has just a Zacks Rank #3 (Hold) which indicates that we are looking for in-line performance from the company in the near term.

Bottom Line

Nonetheless, Regal Beloit 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 (Bottom 44% out of over 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks categorized Machinery – Electrical industry has clearly underperformed the broader market, as you can see below:

Nonetheless, it looks like the broader industry factors are at a turning point and might turn favorable soon. The Machinery – Electricals industry has outdone the broader market in the last one year, and if this trend continues, then the stock could be up for a revival. So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.

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