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 Embraer S.A. (ERJ Quick QuoteERJ - 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, Embraer has a trailing twelve months PE ratio of 25.06, as you can see in the chart below:



This level actually compares unfavorably with the market at large, as the PE for the S&P 500 compares in at about 25.06. If we focus on the stock’s long-term PE trend, the current level puts Embraer’s current PE ratio above its midpoint over the past five years.



Further, the stock’s PE also compares unfavorably with the Zacks classified Aerospace Defense sector’s trailing twelve months PE ratio, which stands at 20.75. At the very least, this indicates that the stock is relatively overvalued right now, compared to its peers.



However, we should also point out that Embraer has a forward PE ratio (price relative to this year’s earnings) of just 11.20, so it is fair to say that a slightly more value-oriented path may be ahead for Embraer stock in the near term.

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, Embraer has a P/S ratio of about 0.60. This is significantly lower than the S&P 500 average, which comes in at 2.98 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, ERJ 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, Embraer currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes Embraer a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the PEG ratio for Embraer is just 0.80, a level that is far lower than the industry average of 1.80. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, ERJ is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Embraer 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 ‘D’. This gives ERJ a Zacks VGM score—or its overarching fundamental grade—of ‘D’. (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 no estimates go higher in the past sixty days compared to one lower, while the full year estimate has seen no movement in either direction in the same time period.

This has had a mixed impact on the consensus estimate though as the current quarter consensus estimate has fallen by 1.4% in the past two months, the full year estimate has increased by 8.7%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

This mixed trend indicates that while the stock’s growth story is intact over the medium term, analysts have some apprehensions about the stock in the immediate future.

Bottom Line

Embraer 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 (Top 9%) and a Zacks Rank #3 (Hold), it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks Aerospace/Defense 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.

The Best Place to Start Your Stock Search

Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>