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Should Value Investors Buy Penske Automotive (PAG) Stock?

Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Neverthe...

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This story originally appeared on Zacks

While the proven Zacks Rank places an emphasis on earnings estimates and estimate revisions to find strong stocks, we also know that investors tend to develop their own individual strategies. With this in mind, we are always looking at value, growth, and momentum trends to discover great companies.

- Zacks

Considering these trends, value investing is clearly one of the most preferred ways to find strong stocks in any type of market. Value investors use a variety of methods, including tried-and-true valuation metrics, to find these stocks.

In addition to the Zacks Rank, investors looking for stocks with specific traits can utilize our Style Scores system. Of course, value investors will be most interested in the system's "Value" category. Stocks with "A" grades for Value and high Zacks Ranks are among the best value stocks available at any given moment.

Penske Automotive (PAG) is a stock many investors are watching right now. PAG is currently sporting a Zacks Rank of #1 (Strong Buy), as well as an A grade for Value.

Another notable valuation metric for PAG is its P/B ratio of 2.02. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. This company's current P/B looks solid when compared to its industry's average P/B of 2.44. Over the past year, PAG's P/B has been as high as 2.15 and as low as 1.24, with a median of 1.68.

Value investors also use the P/S ratio. The P/S ratio is is calculated as price divided by sales. Some people prefer this metric because sales are harder to manipulate on an income statement. This means it could be a truer performance indicator. PAG has a P/S ratio of 0.32. This compares to its industry's average P/S of 0.4.

Finally, investors will want to recognize that PAG has a P/CF ratio of 7.04. This data point considers a firm's operating cash flow and is frequently used to find companies that are undervalued when considering their solid cash outlook. PAG's current P/CF looks attractive when compared to its industry's average P/CF of 9.97. Within the past 12 months, PAG's P/CF has been as high as 10.37 and as low as 5.61, with a median of 8.05.

Value investors will likely look at more than just these metrics, but the above data helps show that Penske Automotive is likely undervalued currently. And when considering the strength of its earnings outlook, PAG sticks out at as one of the market's strongest value stocks.



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