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 Blue Capital Reinsurance Holdings Ltd. BCRH 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:
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, Blue Capital Reinsurance has a trailing twelve months PE ratio of 11.66, 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 19.50. If we focus on the long-term PE trend, Blue Capital Reinsurance’s current PE level puts it above its midpoint over the past five years, with the number having risen steadily over the past few months.
This increase could be due to the fact that the stock’s price has been increasing while earnings have been on a downtrend over the past few months. Both of these trends have had an inflating effect on the PE ratio.
Further, the stock’s PE also compares favorably with the Zacks classified Finance sector’s trailing twelve months PE ratio, which stands at 16.24. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Blue Capital Reinsurance has a forward PE ratio (price relative to this year’s earnings) of 10.71, so it is fair to say that a slightly more value-oriented path may be ahead for Blue Capital Reinsurance’ stock in the near term too.
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business.This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, Blue Capital Reinsurance’s P/CF ratio of 11.55 is lower than the Zacks classified Insurance-Brokers industry average of 14.64, which indicates that the stock is undervalued in this respect.
Broad Value Outlook
In aggregate, Blue Capital Reinsurance 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 Blue Capital Reinsurance a solid choice for value investors.
What About the Stock Overall?
Though Blue Capital Reinsurance 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 ‘B’. This gives BCRH a 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 fairly bullish. The full year estimate has seen one up and none down over the last 60 days.
This has had a meaningful impact on the consensus estimate though as the full year estimate has risen by 6.1% over the last 60 days. You can see the consensus estimate trend and recent price action for the stock in the chart below:
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