Should Value Investors Pick American Railcar (ARII) 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 American Railcar Industries, Inc. ARII 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, American Railcar has a trailing twelve months PE ratio of 14.6, 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 compares in at about 22.3. If we focus on the stock’s long-term PE trend, the current level puts American Railcar’s current PE ratio somewhat above its midpoint (which is 10.4) over the past five years.
Further, the stock’s PE also compares favorably with the industry’s trailing twelve months PE ratio, which stands at 20.5. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that American Railcar has a forward PE ratio (price relative to this year’s earnings) of just 16.8, 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, American Railcar has a P/S ratio of about 1.5. This is substantially lower than the S&P 500 average, which comes in at 3.5 right now. Also, as we can see in the chart below, this is noticeably below the highs for this stock in particular over the past few years.
If anything, this suggests some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, American Railcar currently has a Value Style Score of A, putting it into the top 20% of all stocks we cover from this look. This makes ARII a solid choice for value investors.
What About the Stock Overall?
Though American Railcar 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 F and a Momentum score of B. This gives ARII a 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 full-year 2017 has seen one estimate go lower in the past sixty days, compared to none higher, while the full-year 2018 estimate has seen one upward and one downward revisions in the same time period.
This has had a noticeable impact on the consensus estimate, as the full-year 2017 consensus estimate has fallen about 3.3% in the past two months, while the full-year 2018 estimate has risen about 5.7%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
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American Railcar Industries, Inc. (ARII): Free Stock Analysis Report
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