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Should Value Investors Consider Continental AG (CTTAY) Stock Now?
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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 Continental Aktiengesellschaft (CTTAY - 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, Continental AG has a trailing twelve months PE ratio of 14.36. This level compares favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.34.
If we focus on the long-term trend of the stock the current level puts Continental AG’s current PE slightly above its median (which stands at 13.77) over the past five years. Moreover, the current level is much below the highs experienced for the stock. However, being near the median, the current level does not provide us with a conclusive direction as to the valuation of the stock, relative to its own historical trend.
Notably, the stock’s PE compares somewhat unfavorably with the Zacks classified Automotive - Original Equipment industry’s trailing twelve months PE ratio, which stands at 13.17. At the very least, this indicates that the stock is somewhat overvalued right now, compared to its peers.
We should also point out that Continental AG has a forward PE ratio (price relative to this year’s earnings) of 12.05 – which is lower than the current figure. So it is fair to say that a slightly more value-oriented path may be ahead for Continental AG stock in the near term too.
PS 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, Continental AG has a P/S ratio of about 0.96. This is slightly higher than the Zacks categorized Automotive - Original Equipment industry average, which comes in at 0.80 right now. Nevertheless, a P/S ratio of less than 1 is generally a very good signal.
Notably, CTTAY is actually towards the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
P/CF Ratio
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, Continental AG’s P/CF ratio of 8.34 is only slightly higher than the Zacks classified Automotive - Original Equipment industry average of 8.19, which indicates that the stock is similarly valued in this respect.
Broad Value Outlook
In aggregate, Continental AG 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 Continental AG a solid choice for value investors, and some of its other key metrics make this pretty clear too.
While its P/B ratio (used to compare a stock's market value to its book value) stands at 6.59, same as the industry average, its EV/EBITDA metric is 6.59, a level that is lower than the industry average of 6.91. The EV/EBITDA multiple (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) is capital structure-neutral, as it takes into account the level of debt on a company’s balance sheet, not just its equity. Since the Automotive - Original Equipment industry is highly capital-intensive, it makes sense to compare based on this ratio too.
Clearly, CTTAY is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Continental AG 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 ‘B’ and a Momentum score of ‘A’. This gives CTTAY a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics, and a good VGM score can increase your odds of success. All things considered, Continental AG seems to have pretty striking prospects.
Meanwhile, the company’s recent earnings estimates have been trending upwards lately. The current year has seen one estimate go higher in the past sixty days compared to none lower, while the next year estimate has seen one upward revision and no downward revisions in the same time period.
This has had a small but meaningful impact on the consensus estimate as the current year consensus estimate has increased 3.2% over the past two months, while the next year estimate has moved higher by 3.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This positive trend signifies bullish analyst sentiment, and its Zacks Rank #2 (Buy) indicates robust fundamentals and expectations of outperformance in the near term.
Bottom Line
Continental AG is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. With a formidable industry rank (among the Top 16% out of more than 250 industries) and a strong Zacks Rank, Continental AG looks like a strong value contender.
In fact, over the past one year, the Zacks Automotive - Original Equipment industry has clearly outperformed 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.
Looking for Ideas with Even Greater Upside?
Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more.
Image: Bigstock
Should Value Investors Consider Continental AG (CTTAY) Stock Now?
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 Continental Aktiengesellschaft (CTTAY - 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, Continental AG has a trailing twelve months PE ratio of 14.36. This level compares favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.34.
If we focus on the long-term trend of the stock the current level puts Continental AG’s current PE slightly above its median (which stands at 13.77) over the past five years. Moreover, the current level is much below the highs experienced for the stock. However, being near the median, the current level does not provide us with a conclusive direction as to the valuation of the stock, relative to its own historical trend.
Notably, the stock’s PE compares somewhat unfavorably with the Zacks classified Automotive - Original Equipment industry’s trailing twelve months PE ratio, which stands at 13.17. At the very least, this indicates that the stock is somewhat overvalued right now, compared to its peers.
We should also point out that Continental AG has a forward PE ratio (price relative to this year’s earnings) of 12.05 – which is lower than the current figure. So it is fair to say that a slightly more value-oriented path may be ahead for Continental AG stock in the near term too.
PS 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, Continental AG has a P/S ratio of about 0.96. This is slightly higher than the Zacks categorized Automotive - Original Equipment industry average, which comes in at 0.80 right now. Nevertheless, a P/S ratio of less than 1 is generally a very good signal.
Notably, CTTAY is actually towards the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
P/CF Ratio
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, Continental AG’s P/CF ratio of 8.34 is only slightly higher than the Zacks classified Automotive - Original Equipment industry average of 8.19, which indicates that the stock is similarly valued in this respect.
Broad Value Outlook
In aggregate, Continental AG 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 Continental AG a solid choice for value investors, and some of its other key metrics make this pretty clear too.
While its P/B ratio (used to compare a stock's market value to its book value) stands at 6.59, same as the industry average, its EV/EBITDA metric is 6.59, a level that is lower than the industry average of 6.91. The EV/EBITDA multiple (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) is capital structure-neutral, as it takes into account the level of debt on a company’s balance sheet, not just its equity. Since the Automotive - Original Equipment industry is highly capital-intensive, it makes sense to compare based on this ratio too.
Clearly, CTTAY is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Continental AG 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 ‘B’ and a Momentum score of ‘A’. This gives CTTAY a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics, and a good VGM score can increase your odds of success. All things considered, Continental AG seems to have pretty striking prospects.
Meanwhile, the company’s recent earnings estimates have been trending upwards lately. The current year has seen one estimate go higher in the past sixty days compared to none lower, while the next year estimate has seen one upward revision and no downward revisions in the same time period.
This has had a small but meaningful impact on the consensus estimate as the current year consensus estimate has increased 3.2% over the past two months, while the next year estimate has moved higher by 3.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Continental AG Price and Consensus
Continental AG Price and Consensus | Continental AG Quote
This positive trend signifies bullish analyst sentiment, and its Zacks Rank #2 (Buy) indicates robust fundamentals and expectations of outperformance in the near term.
Bottom Line
Continental AG is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. With a formidable industry rank (among the Top 16% out of more than 250 industries) and a strong Zacks Rank, Continental AG looks like a strong value contender.
In fact, over the past one year, the Zacks Automotive - Original Equipment industry has clearly outperformed 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.
Looking for Ideas with Even Greater Upside?
Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more.
Click here for a peek at this private information >>