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Should Value Investors Pick Neff Corp (NEFF) 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 Neff Corporation NEFF 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, Neff Corp has a trailing twelve months PE ratio of 14.41, 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 20.35. If we focus on the stock’s long-term PE trend, the current level puts Neff Corp’s current PE ratio considerably above its midpoint (which is 10.54) over the past one year.

Further, the stock’s PE also compares favorably with the Zacks classified Industrial Services industry’s trailing twelve months PE ratio, which stands at 18.37. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that Neff Corp has a forward PE ratio (price relative to this year’s earnings) of just 10.56, so it is fair to say that a slightly more value-oriented path may be ahead for Neff Corp 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, Neff Corp has a P/S ratio of about 0.43. This is significantly lower than the S&P 500 average, which comes in at 3.16 right now. Also, as we can see in the chart below, this is slightly below the highs for this stock in particular over the past one year.

If anything, Neff Corp is towards the higher end of its range in the time period from a P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.

Broad Value Outlook

In aggregate, Neff Corp 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 NEFF a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the PEG ratio for United Rentals is 1.53, a level that is slightly lower than the industry average of 1.67. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Additionally, the P/CF ratio (another great indicator of value) comes in at 1.16, which is way better than the industry average of 10.63. Clearly, NEFF is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Neff Corp 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 NEFF 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 encouraging. While the consensus estimate for the current quarter has increased about 13% in the past two months, the full year estimate has risen about 6.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Neff Corporation Price and Consensus

 

Neff Corporation Price and Consensus | Neff Corporation 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

Neff Corp is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Its strong Zacks Rank also indicates robust growth potential in the near future. However, the company’s prospects might be constrained due to adverse broader factors, as it has a sluggish industry rank (bottom 38% out of more than 250 industries). In fact, over the past one year, the Zacks Industrial Services sector has clearly underperformed the broader market, as you can see below:

So, value investors might want to wait for the broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.

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