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 Amgen Inc. (NASDAQ:AMGN) 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, Amgen has a trailing twelve months PE ratio of 12.6, as you can see in the chart below:
This level actually compares favorably with the market at large, as the PE for the S&P 500 stands at about 17.4. If we focus on the long-term PE trend, Amgen’s current PE level puts it below its midpoint of 14.7 over the past five years, with the number having risen rapidly over the past few months.
Further, the stock’s PE also compares pretty favorably with the Medical Market’s trailing twelve months PE ratio, which stands at 20.4. At the very least, this indicates that the stock is much undervalued right now, compared to its peers.
We should also point out that Amgen has a forward PE ratio (price relative to this year’s earnings) of 12.9, which is significantly lower than the current level. So, it is fair to say that a slightly more value-oriented path may be ahead for Amgen stock in the near term too.
PEG Ratio
While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate). The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.
Amgen’s PEG ratio stands at just 2.2, compared with the Zacks Medical-Biomed/ Genetics industry’s average of 3.8. This suggests a bit undervalued trading relative to its earnings growth potential right now.
Broad Value Outlook
In aggregate, Amgen currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Amgen a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the P/CF ratio for Amgen is 10, a level that is quite lower than the industry average of 14.96x. Clearly, AMGN is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Amgen 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 Growth score of C and Momentum Scores of A. This gives AMGN a Zacks VGM score — or its overarching fundamental grade — of B. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been bearish. The current quarter has seen two upward revisions in the past sixty days compared to three downward revisions, while the full year estimate has seen three upward and ten downward revisions in the same time period.
This has had a negative impact on the consensus estimate as the current quarter consensus estimate has declined by 4.4% in the past two months, while the full year estimate has also dipped by 2.6%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Despite the bearish analyst sentiments, the stock holds a Zacks Rank #3 (Hold). Thus, we are looking for in-line performance from the company in the near term.
Bottom Line
Amgen is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Further, a strong industry rank (among Top 28% of more than 250 industries) instils our confidence.
However, with a Zacks Rank #3 it is hard to get too excited about this company overall. In fact, over the past two years, the broader industry has clearly underperformed the market at large, as you can see below:
So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
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Amgen Inc. (AMGN): Free Stock Analysis Report
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