Value investing is unquestionably one of the most popular methods for locating fantastic stocks in any market scenario. After all, who wouldn’t want to discover stocks that are either flying under the radar and represent attractive buys or that provide enticing discounts when compared to fair value?

Looking at various key indicators and financial measures, many of which are important in the value stock selection process, is one technique to locate these companies. Let’s plug Murphy USA (NYSE:MUSA) into this equation to see if it’s a strong pick for value investors right now, or if subscribers to this approach should search elsewhere for top picks.

The PE Ratio

The Price to Earnings Ratio, or PE for short, is a critical indicator that value investors always look at. This ratio, which reveals how much investors are prepared to pay for each dollar of earnings in a specific stock, is easily one of the most popular in the world. The easiest way to use the PE ratio is to compare it to: a) where it has been in the past; b) how it relates to the industry/sector average; and c) how it compares to the market as a whole.

Murphy USA has a trailing twelve months PE ratio of 10.35.

This figure actually compares favorably to the market as a whole, as the S&P 500’s PE is around 19.35. If we look at the long-term PE trend, Murphy USA’s current PE level is lower than its five-year midway (13.18). Furthermore, the current level is significantly below the stock’s highs, implying that it could be a good entry point.

Furthermore, the stock’s PE compares favorably to the Oils-Energy sector’s trailing twelve months PE ratio of 6.01. At the very least, this suggests that the stock is now cheap in comparison to its peers.

We should also mention that Murphy USA has a forward PE ratio (price relative to earnings for the current year) of 14.77, which is greater than the present level. As a result, it is reasonable to anticipate a growth in the company’s share price in the near term.

The P/S Ratio

Another important indicator to consider is the Price/Sales ratio. This method compares the price of a stock to its total sales, with a lower reading being deemed better. Some individuals prefer this metric over others that focus on value since it considers sales, which are significantly more difficult to manipulate with accounting methods than earnings.

Murphy USA now has a P/S ratio of approximately 0.26. This is slightly lower than the S&P 500 average, which is currently 3.7x. Furthermore, as shown in the chart below, this is far lower than the stock’s recent highs.

Image courtesy of Zacks Investment Research Zacks Investment Research is the source.

If anything, this shows that trade is undervalued, at least in comparison to historical averages.

Broad Value Prospects

Murphy USA presently has a Value Score of A, putting it in the top 20% of the stocks we cover based on this analysis. This makes Murphy USA a good choice for value investors, and some of its other key metrics support this.

What About the Overall Performance of the Stock?

Murphy USA may be a solid choice for value investors, but there are numerous other variables to consider before investing in this name. 

Meanwhile, the company’s recent earnings projections have been conservative at best. In the last sixty days, two estimates have increased while none have decreased, while the full-year estimate has increased while none has decreased.

This has had a substantial impact on the consensus estimate, with the current quarter consensus estimate increasing by 2.2% in the last two months and the full-year estimate increasing by 2.2%. 

Bottom Line 

Murphy USA is an inspired choice for value investors, as its incredible lineup of data on this front is difficult to match. However, with a sluggish industry rating (among the Bottom 34% of over 250 industries), it is difficult to be too enthused about this company in general. In fact, the Oil and Gas – Refining and Marketing industry has clearly outperformed the overall market over the last two years.

So, value investors may want to wait for estimates and analyst sentiment in this name to improve before investing in it, but once that happens, this stock could be an attractive pick.

Featured Image: Unsplash @ dpreacherdawn

Please See Disclaimer