Should Value Investors Choose GATX Corporation (GATX) 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 GATX Corporation GATX 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:
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, GATX Corporation has a trailing twelve months PE ratio of 12.91, 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 22.27. While GATX Corporation’s current PE level puts it slightly above its midpoint over the past five years, the current level stands below the highs for the stock, suggesting that it could be a great entry point.
Further, the stock’s PE compares favorably with the Zacks Transportation sector’s trailing twelve months PE ratio, which stands at 20.38. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should point out that GATX Corporation has a forward PE ratio (price relative to this year’s earnings) of 15.51, so it is fair to expect an increase in the company’s share price in the near future.
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, GATX Corporation has a P/S ratio of about 1.86. This is quite lower than the S&P 500 average, which comes in at 3.53 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.
Broad Value Outlook
In aggregate, GATX Corporation currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes GATX Corporation a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for GATX Corporation is just 1.03, a level that is slightly lower than the industry average of 1.30. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Additionally, its P/CF ratio (another great indicator of value) comes in at 4.86, which is far better than the industry average of 6.13. Clearly, GATX is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though GATX Corporation 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 F and a Momentum Score of D. This gives GATX 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 quite encouraging. The current quarter and full year consensus estimates have risen by 1.4% and 0.4% in the past two months, respectively.
Courtesy of this bullish trend, the stock has a Zacks Rank #2 (Buy), which is why we are looking for outperformance from the company in the near term.
GATX Corporation is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, this Zacks Rank #2 company enjoys a solid Zacks Industry Rank, (among top 20% of more than 250 industries) hinting at favorable broader factors.
So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
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