Should value investors buy Canon Inc. (CAJ) shares?

Value investing is undoubtedly one of the most popular methods for finding great stocks in any market environment. After all, who wouldn’t want to find stocks that either fly under the radar and represent attractive buying opportunities or offer tempting discounts compared to fair value?

One way to find these companies is to look at several key metrics and financial ratios, many of which are critical when selecting value stocks. Canon Inc. Consider CAJ stock in this equation and find out if it’s a good choice for value investors right now or if investors following this method should look elsewhere for top picks:

P/E

One important metric that value investors always look at is the price-to-earnings ratio (or P/E ratio for short). It tells us how much investors are willing to pay for each dollar of earnings from a given stock and is undoubtedly one of the most popular financial metrics in the world. The P/E ratio is best used to compare the stock’s current P/E ratio to: a) the previous P/E ratio, b) the industry average, and c) the overall market.

In this regard, Canon Inc. has a P/E ratio of 15.5 for the last twelve months, as you can see in the chart below:

This level is actually quite cheap compared to the overall market, as the P/E ratio of the S&P 500 is around 19.9. If we focus on the stock’s long-term P/E trend, Canon Inc.’s current P/E at current levels is just below its median (which is 17.6) over the last five years.

In addition, the stock’s P/E ratio also compares favorably to the sector’s trailing-12-month P/E ratio of 21.3, suggesting at least that the stock is currently relatively undervalued compared to its peers.

We should also point out that Canon Inc. has a P/E (price-to-earnings ratio relative to this year’s earnings) of just 15.1. So it’s safe to assume that Canon Inc. stock could also see a somewhat more value-oriented development in the near future.

P/S ratio

Another important metric is the price-to-sales ratio. This approach compares the price of a particular stock to its total sales, with a lower value generally being considered better. Some people like this metric more than other value-based metrics because it takes into account sales, which are far more difficult to manipulate with accounting tricks than earnings.

Canon Inc. currently has a P/S ratio of about 1.01. This is significantly lower than the S&P 500 average, which is currently at 3.3. As we can see in the chart below, this is also slightly below the highs this stock has seen over the past few years.

If anything, this suggests some degree of undervalued trading – at least compared to historical norms.

Comprehensive value outlook

Overall, Canon Inc. currently has a Value Style Score of B, putting it in the top 40% of all stocks we cover in this article. That makes CAJ a solid choice for value investors, and some of its other key metrics make that pretty clear, too.

For example, the PEG ratio for Canon Inc. is just 1.9, well below the industry average of 4.4. The PEG ratio is a modified P/E ratio that takes into account the stock’s earnings growth rate. CAJ is clearly a solid value pick from multiple perspectives.

What is the overall situation with the stock?

While Canon Inc. could be a great 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 Grade of D and a Momentum Score of B. This gives CAJ a VGM Score — or its overarching fundamental grade — of B. (For more information on Zacks Style Scores, click here >>)

Meanwhile, the company’s recent earnings estimates have been encouraging. The consensus estimate for the current year has increased by about 1.3% over the past two months, while the full-year 2019 estimate has increased by 0.4%. You can see the consensus estimate trend and the stock’s recent price action in the chart below:

Canon, Inc. Price and Consensus

Canon, Inc. Price and Consensus | Canon, Inc. Quote

Although Western Union has a slightly better estimate trend, the stock only has a Zacks Rank #3 (Hold). For this reason, we expect the company to perform in line with forecasts in the near future.

Bottom line

Canon Inc. is an inspired choice for value investors, as its incredible stats are hard to beat in this regard. However, with a sluggish industry ranking (bottom 16% of more than 250 industries) and a Zacks Rank of #3, it’s hard to get excited about this company overall. In fact, the sector has significantly underperformed the overall market over the past year, as you can see below:

Value investors may want to wait for broader factors and industry trends to turn positive for the name, but once that happens, the stock could be an attractive pick.

The hottest tech megatrend ever

Last year, the company generated $8 billion in global revenue, and revenue is expected to rise to $47 billion by 2020. Well-known investor Mark Cuban says the company will create “the world’s first trillionaires,” but there should still be plenty of money left for regular investors who make the right trades early on.

Check out Zacks’ 3 best stocks to take advantage of this trend >>

Want the latest recommendations from Zacks Investment Research? Download the 7 best stocks for the next 30 days today. Click here to get this free report

Canon, Inc. (CAJ): Free Stock Analysis Report

To read this article on Zacks.com, click here.

Zacks Investment Research