Should Value Investors Buy Cars.com (CARS) Stock?

Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.

Of these, perhaps no stock market trend is more popular than value investing, which is a strategy that has proven to be successful in all sorts of market environments. Value investors use a variety of methods, including tried-and-true valuation metrics, to find these stocks.

Zacks has developed the innovative Style Scores system to highlight stocks with specific traits. For example, value investors will be interested in stocks with great grades in the "Value" category. When paired with a high Zacks Rank, "A" grades in the Value category are among the strongest value stocks on the market today.

One company to watch right now is Cars.com (CARS). CARS is currently sporting a Zacks Rank #2 (Buy), as well as an A grade for Value.

Value investors also frequently use the P/S ratio. This metric is found by dividing a stock's price with the company's revenue. This is a popular metric because sales are harder to manipulate on an income statement, so they are often considered a better performance indicator. CARS has a P/S ratio of 1.14. This compares to its industry's average P/S of 1.34.

Finally, our model also underscores that CARS has a P/CF ratio of 5.38. This data point considers a firm's operating cash flow and is frequently used to find companies that are undervalued when considering their solid cash outlook. CARS's P/CF compares to its industry's average P/CF of 15.25. Over the past year, CARS's P/CF has been as high as 10.36 and as low as 4.20, with a median of 7.18.

These are only a few of the key metrics included in Cars.com's strong Value grade, but they help show that the stock is likely undervalued right now. When factoring in the strength of its earnings outlook, CARS looks like an impressive value stock at the moment.

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This article originally published on Zacks Investment Research (zacks.com).

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