Should value investors choose Westlake (WLK) stocks 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 go unnoticed and are attractive buys, or that offer tempting discounts from their fair value?

One way to find these companies is to look at several key metrics and financial ratios, many of which are crucial in the value stock selection process. let’s say Westlake Corporation WLK stock in this equation and find out if it’s a good fit for value investors right now, or if investors subscribing to this methodology should look elsewhere for the best picks:

P/E ratio

A key metric that value investors always look at is the price-to-earnings ratio, or PE for short. It tells us how much investors are willing to pay for every dollar of profit from a given stock, and it’s 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 that ratio has been in the past; b) how it compares to the industry/sector average; and c) how it compares to the market as a whole.

On this front, Westlake has a year-over-year PE ratio of 6.36, as you can see in the chart below:

Image source: Zacks Investment Research

This level actually compares quite favorably to the market as a whole, as the PE of the S&P 500 sits at around 18.54. If we focus on the long-term trend of the PE, the current level of Westlake’s PE places it below its midpoint over the past five years.

Zacks Investment Research
Image source: Zacks Investment Research

Additionally, the stock’s PE compares favorably to the Zacks Basic Materials sector’s trailing 12-month PE ratio of 8.15. If nothing else, this indicates that the stock is currently relatively undervalued compared to its peers.

Zacks Investment Research
Image source: Zacks Investment Research

We should also point out that Westlake has a forward PE ratio (price to earnings this year) of just 5.78, so it’s fair to say that a slightly more value-oriented trajectory may be ahead for the company. Westlake stock in the short term as well.

P/S ratio

Another key metric to note is the price-to-sales ratio. This approach compares the price of a given stock to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused metrics because it looks at sales, which is much harder to manipulate with accounting tricks than profits.

Currently, Westlake has a P/S ratio of around 1.21. That’s below the S&P 500 average, which currently sits at 3.94. Also, as we can see in the chart below, this is below the highs for this particular stock in the past few years.

Zacks Investment Research
Image source: Zacks Investment Research

On the contrary, WLK is at the lower end of its range over the period from a P/S metric, suggesting some level of undervalued trading, at least by historical standards.

Overall value outlook

Overall, Westlake currently has a Zacks value score of A, which puts him in the top 20% of all stocks we cover from this look. This makes Westlake a solid choice for value investors.

What about the overall stock?

While Westlake may be a good choice for value investors, there are many other factors to consider before investing in this name. In particular, it’s worth noting that the company has a Growth score of F and a Momentum score of C. This gives WLK a Zacks VGM score – or its overall fundamental score – of A. (You can read more on Zacks style scores here >>)

Meanwhile, the company’s recent earnings estimates have been encouraging. The current year has seen five estimates rise in the past sixty days against three declines, while the estimate for the whole of 2021 has seen three revisions up against one fall in the past year. same period.

This had a positive impact on the consensus estimate, as the consensus estimate for the current year improved by 19.7% in the last two months, while the estimate for the year 2023 improved. increased by 1.4%. You can see the trend of the consensus estimate and the recent price action of the stock in the chart below:

Price and Consensus of Westlake Corp.

Price and Consensus of Westlake Corp.

Westlake Corp price consensus chart. | Quote from Westlake Corp.

This uptrend is why the stock enjoys a Zacks #1 rank (Strong Buy) and why we expect the company to outperform in the near term.

Conclusion

Westlake is an inspired pick for value investors, as it’s hard to beat its incredible stat lineup on this front. A Zacks #1 ranking further boosts our confidence. In fact, over the past two years, the Zacks Chemical – Plastics industry has clearly outperformed the market as a whole, as you can see below:

Zacks Investment Research
Image source: Zacks Investment Research

However, a slow industry ranking (among the bottom 15% of over 250 industries) makes it hard to get too excited about this company as a whole.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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