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 Vera Bradley, Inc. (NASDAQ:VRA) 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, Vera Bradley has a trailing twelve months PE ratio of 16.6, 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 20.3. If we focus on the long-term PE trend, Vera Bradley’s current PE level puts it slightly above its midpoint over the past five years.
However, the stock’s PE also compares unfavorably with the industry’s trailing twelve months PE ratio, which stands at 12.5. This indicates that the stock is relatively overvalued right now, compared to its peers.
We should also point out that Vera Bradley has a forward PE ratio (price relative to this year’s earnings) of 18.2, so it is fair to say that the stock price might appreciate in future.
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, Vera Bradley has a P/S ratio of about 0.7. This is a bit lower than the S&P 500 average, which comes in at 3.2x right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
If anything, VRA is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Vera Bradley currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Vera Bradley 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 Vera Bradley is 6.7, slightly lower than the industry average of 7. Clearly, VRA is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Vera Bradley 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 Score of A and a Momentum Score of A. This gives VRA 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 mixed at its best. The current quarter has seen no estimate to go up in the past 60 days compared to three going down while the full year estimate has seen four up and no down in the same time period.
This has had a significant impact on the consensus estimate as the current quarter consensus estimate has fallen by 12.5% in the past two months and the full year estimate has gone up by 9.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Vera Bradley, Inc. Price and Consensus
This somewhat mixed trend is why the stock has just a Zacks Rank #3 (Hold) and we are looking for in line performance from the company in the near term.
Bottom Line
Vera Bradley is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a strong industry (Ranked among top 37% out of more than 250 industries) has further strengthened its growth potential. 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.
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Vera Bradley, Inc. (VRA): Free Stock Analysis Report
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