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 The Interpublic Group of Companies, Inc. IPG 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, Interpublic Group has a trailing twelve months PE ratio of 17.34. This level compares pretty favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.38.
If we focus on the long-term trend of the stock the current level puts Interpublic Group’s current PE below its median (which stands at 18.84) over the past five years. This suggests that the stock is somewhat undervalued compared to its own historical levels and thus it could prove to be a suitable entry point.
Further, the stock’s PE also compares considerably favorably with the Zacks classified Advertising and Marketing industry’s trailing twelve months PE ratio, which stands at 31.68. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers. In fact, the stock has historically always been undervalued than its peers.
We should also point out that Interpublic Group has a forward PE ratio (price relative to this year’s earnings) of 16.95 – which is lower than the current figure. So it is fair to say that a slightly more value-oriented path may be ahead for Interpublic Group stock in the near term too.
PS 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, Interpublic Group has a P/S ratio of about 1.25. This is lower than the Zacks categorized Advertising and Marketing industry average, which comes in at 1.85 right now. In fact, the stock has always been relatively undervalued compared to the industry, in this respect.
Notably, IPG is actually in the higher zone of its trading range in the time period per the 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, Interpublic Group 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 Interpublic Group 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 4.61, while the industry’s average stands at a negative 0.52. Thus, while the industry is experiencing negative cash flows, IPG’s financial health seems much better. Clearly, IPG is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Interpublic Group 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 ‘B’. This gives IPG a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics, and a good VGM score can increase your odds of success. All things considered, Interpublic Group seems to have pretty striking prospects.
Meanwhile, the company’s recent earnings estimates have been trending upwards lately. The current quarter has seen one estimate go higher in the past sixty days compared to none lower, while the full year estimate has seen four upward revisions and one downward revision in the same time period.
This has had a meaningful impact on the consensus estimate as the current quarter consensus estimate has moved from break-even earnings to earnings of 2 cents per share, while the full year estimate has inched higher by 2.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Interpublic Group of Companies, Inc. (The) Price and Consensus
Interpublic Group of Companies, Inc. (The) Price and Consensus | Interpublic Group of Companies, Inc. (The) 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
Interpublic Group is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Boasting a good industry rank and a top Zacks Rank, the company deserves attention right now. 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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