Should Value Investors Consider Fiat Chrysler (FCAU) Stock Now?

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 Fiat Chrysler Automobiles N.V. FCAU 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, Fiat Chrysler has a trailing twelve months PE ratio of 7.6, 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 20.1. If we focus on the stock’s long-term PE trend, the current level puts Fiat Chrysler’s current PE ratio well below its highs over the past three years.

Further, the stock’s PE also compares favorably with the industry’s trailing twelve months PE ratio, which stands at 8.9. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that Fiat Chrysler has a forward PE ratio (price relative to this year’s earnings) of just 5.6, so it is fair to say that a slightly more value-oriented path may be ahead for Fiat Chrysler’s 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, Fiat Chrysler has a P/S ratio of about 0.3. This is substantially lower than the S&P 500 average, which comes in at 3.2 right now.

If anything, this suggests some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

In aggregate, Fiat Chrysler currently has a Value Style Score of A, putting it into the top 20% of all stocks we cover from this look. This makes FCAU a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the P/CF ratio (another great indicator of value) comes in at 3.6, which is better than the industry average of 5.1. Clearly, FCAU is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Fiat Chrysler 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 A. This gives FCAU a 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 encouraging. The consensus estimate for the current year has increased by 19% in the past two months, and that of the next year has risen 20%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Fiat Chrysler Automobiles N.V. 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

Fiat Chrysler is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a formidable industry rank (top 11% out of more than 250 industries) further supports the growth potential of the stock. However, over the past one year, the sector has underperformed the broader market, as you can see below:

Despite the poor past performance of the industry, a good industry rank signals that the stock is likely to benefit from favorable broader factors in the immediate future. Add to this the positive estimate revisions and robust value metrics, and we believe that we have a strong value contender in Fiat Chrysler.

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