Is Penske Automotive Group, Inc. Stock (PAG) Suitable for Value Investors?

Here's how our value metrics add up for PAG

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?

Is Penske Automotive Group, Inc. Stock (PAG) Suitable for Value Investors?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 Penske Automotive Group, Inc. (NYSE:PAG) 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.

PAG’s PE Ratio Is Favorable…

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, Penske has a trailing twelve months PE ratio of 12.60, 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 20.53. If we focus on the long-term PE trend, Penske’s current PE level puts it below its midpoint over the past five years.

Further, the stock’s PE also compares favorably with the Zacks classified Retail/Wholesale sector’s trailing twelve months PE ratio, which stands at 25.06. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that Penske has a forward PE ratio (price relative to this year’s earnings) of just 11.68, so it is fair to say that a slightly more value-oriented path may be ahead for Penske stock in the near term too.

…While Its P/S Ratio Suggest PAG May Be Undervalued

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, Penske has a P/S ratio of about 0.21. This is considerably lower than the S&P 500 average, which comes in at 3.11 right now.

If anything, PAG 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.

In aggregate, Penske currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes Penske a solid choice for value investors, and some of its other key metrics make this pretty clear too.

What About PAG’s Stock Overall?

Though Penske 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 ‘C’ and a Momentum score of ‘C’. This gives PAG 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 mixed at best. The current quarter has seen one upward and downward estimate revision in the past sixty days, while the full year estimate has seen three upward and one downward revisions in the same time frame.

As a result, the current quarter consensus estimate has increased by 2.1% in the past two months, while the full year estimate has remained stable. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Penske Automotive Group, Inc. Price and Consensus

Penske Automotive Group, Inc. Price and Consensus | Penske Automotive Group, Inc. Quote

Despite this somewhat positive trend, the stock has a Zacks Rank #3 (Hold), which indicates expectations of in-line performance from the company in the near term.

The Bottom Line on Penske Stock: Wait It Out 

Penske is an inspired choice for value investors, as it is hard to beat its good lineup of statistics on this front.

However, with a sluggish industry rank (Bottom 34% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall.

In fact, over the past two years, the Zacks Retail/Wholesale Auto/Truck industry has underperformed the broader market, as you can see below:

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

5 Trades Could Profit “”Big-League”” from Trump Policies

If the stocks above spark your interest, wait until you look into companies primed to make substantial gains from Washington’s changing course.
Today Zacks reveals 5 tickers that could benefit from new trends like streamlined drug approvals, tariffs, lower taxes, higher interest rates, and spending surges in defense and infrastructure. See these buy recommendations now >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Penske Automotive Group, Inc. (PAG): Free Stock Analysis Report

To read this article on Zacks.com click here.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/is-penske-automotive-a-suitable-stock-for-value-investors/.

©2019 InvestorPlace Media, LLC