Should Value Investors Pick Farmers Capital (FFKT) Stock?

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 Farmers Capital Bank Corporation (NASDAQ:FFKT) 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, Farmers Capital has a trailing twelve months PE ratio of 18.5, 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 21.3. If we focus on the long-term PE trend, Farmers Capital’s current PE level puts it above its midpoint over the past five years.



However, the stock’s PE compares slightly unfavorably with the industry’s trailing twelve months PE ratio, which stands at 17.9. This indicates that the stock is relatively overvalued right now, compared to its peers.



Nonetheless, we should also point out that Farmers Capital has a forward PE ratio (price relative to this year’s earnings) of just 16.7, so it is fair to say that a slightly more value-oriented path may be ahead for Farmers Capital stock in the near term.

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, Farmers Capital has a P/S ratio of about 3.8. This is a bit higher than the S&P 500 average, which comes in at 3.4 right now. As we can see in the chart below, this is above the median for this stock in particular over the past few years.



FFKT 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, Farmers Capital 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 Farmers Capital a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, its P/CF ratio comes in at 12.0, which is far better than the industry average of 16.2. 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.

What About the Stock Overall?

Though Farmers Capital 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 D and a Momentum score of B. This gives FFKT a Zacks VGM score—or its overarching fundamental grade—of C. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been encouraging. The current quarter as well as the full year has seen one estimate go higher in the past sixty days compared to none lower.

As a result, the current quarter consensus estimate has risen by 1.7% in the past two months, while the full year estimate has increased 5.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

This somewhat favorable trend is why the stock has a Zacks Rank #2 (Buy) and why we are looking for better performance from the company in the near term.

Bottom Line

Farmers Capital is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Its strong Zacks Rank also indicates robust growth potential in the near future. However, the company’s prospects might be constrained due to adverse broader factors, as it has a sluggish industry rank (Bottom 26% out of more than 250 industries). In fact, over the past one year, the industry has clearly underperformed the broader market, as you can see below:



So, value investors might want to wait for the broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.

Zacks Editor-in-Chief Goes "All In" on This Stock

Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.

Download it free >>