Is United Continental (UAL) a Great Stock for Value Investors?

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 United Continental Holdings, Inc. UAL 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, United Continental has a trailing twelve months PE ratio of 11, 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 stands at about 22.3. If we focus on the long-term PE trend, the current level stands way below the highs for the stock, indicating that it could be a solid entry point.

Further, the stock’s PE also compares favorably with its industry’s trailing twelve months PE ratio, which stands at 14.3. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

 

We should also point out that United Continental has forward PE of 11.5x, so it is fair to expect a slight 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, United Continental has a P/S ratio of about 0.6. This is much lower than the S&P 500 average, which comes in at 3.5 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, United Continental 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 United Continental a solid choice for value investors, and some of its other key metrics make this pretty clear too.

Additionally, its P/CF ratio (another great indicator of value) comes in at 5.2, which is far better than the industry average of 6.2. Clearly, UAL is a solid choice on the value front from multiple angles.

What About the Stock Overall?

While United Continental 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 D and a Momentum score of C. This gives UAL a Zacks VGM score—or its overarching fundamental grade—of B. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been encouraging. The current year has seen NINE estimates go higher in the past thirty days compared to none lower, while the next year estimate has also seen nine up and none down in the same time period.

As a result, the current year consensus estimate has increased nearly 4.9% in the past one month, while the next year estimate has moved up by 8.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

United Continental Holdings, Inc. Price and Consensus

United Continental Holdings, Inc. Price and Consensus

United Continental Holdings, Inc. price-consensus-chart | United Continental Holdings, Inc. Quote

Even though the company has better estimates trend, the stock has just a Zacks Rank #3 (Hold). That is why we are looking for in-line performance from the company in the near term.

Bottom Line

United Continental is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. The stock belongs to an industry which is ranked among the Top 37%, indicating that broader factors are favorable for the company. Further, over the past three months, its industry has 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.

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