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 H&R Block,Inc. (HRB Quick QuoteHRB - Free Report) 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, H&R Block has a trailing twelve months PE ratio of 14.37, 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 19.6. If we focus on the long-term PE trend, the current level puts H&R Block’s current PE ratio below its midpoint.  Moreover, the current level is fairly below the highs for this stock, suggesting that the stock is undervalued compared to its historical levels.

Further, the stock’s PE also compares favorably with the Zacks classified Consumer Services - Miscellaneous industry’s trailing twelve months PE ratio, which stands at 20.2. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that H&R Block has a forward PE ratio (price relative to this year’s earnings) of just 13.77, so it is fair to say that a slightly more value-oriented path may be ahead for H&R Block stock in the near term too.

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, H&R Block has a P/S ratio of about 1.64. This is a bit lower than the S&P 500 average, which comes in at 2.9 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, HRB 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, H&R Block 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 H&R Block a solid choice for value investors, and some of its other key metrics make this pretty clear too. 

For example, the PEG ratio for H&R Block is just 1.18, a level that is far lower than the industry average of 1.21. 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 4.72, which is far better than the industry average of 5.40. Clearly, HRB is a solid choice on the value front from multiple angles.  

What About the Stock Overall?

Though H&R Block 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 ‘A’ and a Momentum score of ‘D’. This gives HRB 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 not been so encouraging. The current quarter has seen none of the estimates going higher in the past sixty days compared to four lower, while the full year estimate has seen one upward and four downward revision in the same time period.

As a result, the current quarter consensus estimate has fallen by 7.1% in the past two months, while the full year estimate has gone lower by 3.5%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Notably, the stock has a long term expected earnings growth of 11.7% and sports a Zacks Rank #3 (Hold). These mixed expectations indicate that while the stock’s growth story might be good over the long term, analysts have some apprehensions about the stock in the immediate future. Thus, we are looking for in-line performance from the company in the near term.

Bottom Line

H&R Block is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However with a sluggish industry rank (Bottom 21%) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the Consumer Services - Miscellaneous industry has clearly underperformed the broader market, as you can see below:

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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