Should value investors buy HCA Healthcare (HCA) 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. HCA Healthcare, Inc. Include HCA stock in this equation and find out if it’s a good choice for value investors right now or if investors following this methodology should look elsewhere for top picks:

P/E

One important metric that value investors always look at is the price-to-earnings (P/E) ratio. 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 to: a) its previous P/E, b) the industry average, and c) the overall market.

In this regard, HCA Healthcare has a P/E ratio of 14.8 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 20.9. If we focus on the long-term P/E trend of the stock, HCA Healthcare’s current P/E at current levels is slightly above its median (which is 13.2) over the last five years.

In addition, the stock’s P/E ratio also compares favorably to the industry’s trailing twelve-month P/E ratio of 16.5, suggesting at least that the stock is currently relatively undervalued compared to its peers.

We should also point out that HCA Healthcare has a price-to-earnings ratio (price to this year’s earnings) of just 11.8. So it’s safe to assume that HCA Healthcare’s stock could continue to develop somewhat more value-oriented 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.

Currently, HCA Healthcare has a P/S ratio of about 0.8. This is significantly lower than the S&P 500 average, which is currently at 3.4. 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, HCA Healthcare currently has a Value Style Score of A, putting it in the top 20% of all stocks we cover in this look. This makes HCA a solid choice for value investors, and some of its other key metrics make this pretty clear, too.

For example, the PEG ratio for HCA Healthcare is just 1.0, slightly below the industry average of 1.3. The PEG ratio is a modified P/E ratio that takes into account the stock’s earnings growth rate. HCA is clearly a solid value pick from multiple angles.

What is the overall situation with the stock?

While HCA Healthcare 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 A and a Momentum Score of D. This gives HCA a VGM Score — or its overarching fundamental grade — of A. (For more information on Zacks Style Scores, click here >>)

Meanwhile, the company’s recent earnings forecasts have been encouraging. For the current quarter, forecasts have been revised upward seven times over the past sixty days, while none have been revised downward. The full-year forecast has been revised upward twelve times over the same period, and none have been revised downward.

This has had a positive impact on the consensus estimate as the consensus estimate for the current quarter has increased by almost 13.7% over the past two months, while the estimate for the full year has increased by about 18.0%. You can see the trend of the consensus estimate and the recent price action of the stock in the chart below:

HCA Healthcare, Inc. Price and Consensus

HCA Healthcare, Inc. Price and Consensus | HCA Healthcare, Inc. Price

The stock has a Zacks Rank #3 (Hold), which suggests the company’s performance will be in line with expectations in the near term. However, HCA Healthcare enjoys optimistic analyst sentiment as evidenced by the positive estimate revisions, and this is benefiting the company.

Bottom line

HCA Healthcare is an inspired choice for value investors, as its incredible number of statistics are hard to beat in this regard. In addition, a decent industry ranking (top 40% of more than 250 industries) supports the stock’s growth potential. However, with a Zacks Rank of 3, it’s hard to get excited about this company overall. In fact, the sector has significantly underperformed the broader market over the past year, as you can see below:

Despite the positive forecast revisions, investors should wait for industry trends to change. When that happens, this stock could be an attractive value proposition.

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