Why ARRIS International (ARRS) Could be a Great Value Pick
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 ARRIS International plc ARRS 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, ARRIS International has a trailing twelve months PE ratio of 12.3, 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 20.6. If we focus on the long-term PE trend, ARRIS International’s current PE level puts it slightly below its midpoint of 13 over the past five years. Moreover, the current level stands well below the highs for the stock, suggesting that it could be a solid entry point.
Further, the stock’s PE compares favorably with the Zacks Computer & Technology sector’s trailing twelve months PE ratio, which stands at 22.7. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that ARRIS International has a forward PE ratio (price relative to this year’s earnings) of just 10.7, so it is fair to say that a slightly more value-oriented path may be ahead for ARRIS International stock in the near term too.
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, ARRIS International has a P/S ratio of about 0.8. This is much lower than the S&P 500 average, which comes in at 3.3 right now. Also, as we can see in the chart below, this stands below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, ARRIS International currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes ARRIS International a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for ARRIS International is 1.1, a level that is slightly lower than the industry average of 1.9. 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 5.5, which is far better than the industry average of 13.1. Clearly, ARRS is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though ARRIS International 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 F. This gives ARRS 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 best. The current quarter has seen three estimates go lower in the past thirty days compared to no upward revisions, while the full year estimate has seen three upward and no downward revisions in the same time period.
This has had a mixed impact on the consensus estimate, as the current quarter consensus estimate has dropped by 6.1% in the past month, while the full year estimate has increased 3.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This indicates that though the company might face some hurdles in the near-term, its ongoing prospects look promising. Further, ARRIS International has long-term growth rate of 10%. Thanks to these factors, the stock boasts a Zacks Rank #2 (Buy), which indicates why we are looking for outperformance from the company.
ARRIS International is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Further, this Zacks Rank #2 company flaunts a solid Zacks Industry Rank (among top 32% of more than 250 industries), which hints at favorable broader factors. In fact, over the past two years, the industry has clearly surpassed the broader market, as you can see below:
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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