Who wouldn’t want to identify stocks that are either flying under the radar and are enticing buys, or that provide mouth-watering bargains relative to fair value?
Looking at various important indicators and financial measures, many of which are critical in the value stock selection process, one being a technique to locate these firms. Let’s add Centene Corporation (CNC) stock into this equation to see if it’s a solid value option right now, or if value-oriented investors should go elsewhere for top selections using this same methodology?
The Price to Earnings Ratio, or PE for short is a critical indicator that value investors constantly look at. This is one of the most widely used financial ratios in the world and it illustrates how much investors are prepared to pay for each dollar of earnings in a specific stock. Comparing the stock’s current PE ratio to: a) where it has been in the past; b) how it compares to the industry/sector average; and c) how it compares to the market as a whole is the best way to use the PE ratio.
Centene has a trailing twelve month PE ratio of 16.22 on this front. This figure actually compares favourably to the market as a whole, with the S&P 500’s PE hovering at 21.30. If we look at the long-term PE trend, Centene’s current PE level is higher than its five year midpoint. Additionally, the stock’s PE compares favourably to the industry’s trailing twelve month PE ratio of 22.04. This shows at the absolute least that the stock is now rather cheap in comparison to its peers.
Meanwhile, recent profit predictions for the corporation have been lacklustre at best. In the last sixty days, one estimate has gone up and four have gone down, while the full year estimate has experienced two upward and four negative adjustments in the same time frame. As a result, the consensus projection for the current quarter has by dropped 1.8% in the last two months, while the full year estimate has dropped by 2.3%.
While the industry has outperformed the broader market over the last two years, given the downward trend in earnings estimate revisions, value investors may want to wait for estimates, analyst sentiment and other broader factors to help with the decision, but once they do, this stock could be a compelling buy.
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