Advertisement
Canada markets closed
  • S&P/TSX

    22,167.03
    +59.95 (+0.27%)
     
  • S&P 500

    5,254.35
    +5.86 (+0.11%)
     
  • DOW

    39,807.37
    +47.29 (+0.12%)
     
  • CAD/USD

    0.7382
    -0.0005 (-0.06%)
     
  • CRUDE OIL

    83.11
    -0.06 (-0.07%)
     
  • Bitcoin CAD

    94,755.04
    -634.84 (-0.67%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • GOLD FUTURES

    2,254.80
    +16.40 (+0.73%)
     
  • RUSSELL 2000

    2,124.55
    +10.20 (+0.48%)
     
  • 10-Yr Bond

    4.2060
    +0.0100 (+0.24%)
     
  • NASDAQ

    16,379.46
    -20.06 (-0.12%)
     
  • VOLATILITY

    13.01
    0.00 (0.00%)
     
  • FTSE

    7,952.62
    +20.64 (+0.26%)
     
  • NIKKEI 225

    40,369.44
    +201.37 (+0.50%)
     
  • CAD/EUR

    0.6838
    -0.0005 (-0.07%)
     

Should Value Investors Choose Waddell & Reed Financial (WDR)?

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 Waddell & Reed Financial, Inc. WDR 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, Waddell & Reed Financial has a trailing twelve months PE ratio of 8.47, as you can see in the chart below:


 
This level actually compares favorably with the market at large, as the PE for the S&P 500 stands at about 19.25. If we focus on the long-term PE trend, Waddell & Reed Financial’s current PE level puts it below its midpoint of 8.97 over the past five years, with the number having risen rapidly over the past few months. However, the current level stands below the highs for the stock, suggesting that it can be a solid entry point.


 
Moreover, the stock’s PE also compares favorably with the Zacks Finance Market sector’s trailing twelve months PE ratio, which stands at 14.58. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.


 
We should also point out that Waddell & Reed Financial has a forward PE ratio (price relative to this year’s earnings) of 9.41, so it is fair to expect an increase in the company’s share price in the near future.

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, Waddell & Reed Financial has a P/S ratio of about 1.09. This is much lower than the S&P 500 average, which comes in at 3.33 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.


 
Broad Value Outlook

In aggregate, Waddell & Reed Financial currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Waddell & Reed Financial a solid choice for value investors.

For example, the P/CF ratio for Waddell & Reed Financial (another great indicator of value) comes in at 5.77, which is better than the industry average of 9.25. Clearly, WDR is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Waddell & Reed Financial 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 Score of B and Momentum Score of B. This gives WDR 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 mixed at the best. The current year has seen two upward revisions in the past sixty days compared to one downward revision, while the full year 2020 estimate has seen no upward revision compared to three downward revisions in the same time period.

The current year consensus estimate increased 0.6% in the past two months, whereas the full year 2020 estimate fell 9%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

ADVERTISEMENT

Waddell & Reed Financial, Inc. Price and Consensus

Waddell & Reed Financial, Inc. Price and Consensus
Waddell & Reed Financial, Inc. Price and Consensus

Waddell & Reed Financial, Inc. price-consensus-chart | Waddell & Reed Financial, Inc. Quote

Owing to such bearish estimate trends, the stock has a Zacks Rank #3 (Hold), which is why we are looking for in-line performance from the company in the near term.

Bottom Line

Waddell & Reed Financial 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 44% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the broader industry has underperformed the market at large, 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.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.

Click here for the 6 trades >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Waddell & Reed Financial, Inc. (WDR) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research