Why the market could have been wrong about the Intercorp Financial Services stock price
Good stocks at cheap prices are what the best investors are looking for. In this time of economic turbulence, could we Intercorp Financial Services (NYQ: IFS) be part of it?
When it comes to proven drivers of stock market earnings, a mix of “good” and “cheap” is often seen as highly desirable.
Research shows that expensive, low-quality stocks tend to underperform, while cheap, high-quality stocks can generate much more reliable earnings on average over time. It’s not guaranteed – and no stock is immune to a sudden setback – but focusing on quality and value is what some of the best investors in the world do..
Intercorp Financial Services share price has moved -32.9% over the past three months and is currently trading at $23.4. The encouraging news is that he possesses at least some of the traits that are often associated with of them Influencing factors of investment return: high quality and one relatively cheap valuation.
Here’s an idea of where you can see this:
Good quality stocks are valued by the market because they are more likely to be strong and reliable companies. Profitability is important, but so is the financial strength of the company. A history of improving finances is essential.
One of the measures of quality for Intercorp Financial Services is that it succeeds 5 of the 9 financial tests in the Piotroski F-Score. The F-Score is a world-class accounting checklist for finding stocks with a trend of improving financial health. A good F-Score suggests that the company has strong signs of quality.
While quality is important, no one wants to pay too much for a stock, so an attractive valuation is also essential. With a weaker economy, earnings forecasts are unclear across the broader market. But there are some valuation metrics that can help, and one of them is earnings yield.
Earnings Yield compares a company’s earnings to its market valuation (calculated by dividing its operating earnings by its enterprise value). It gives you a total stock value (including its cash and debt), making it easy to compare different stocks. As a percentage, the higher the earnings yield, the better the stock value.
A rule of thumb for a reasonable earnings yield might be 5%, and the earnings yield for Intercorp Financial Services is currently 17.6%.
In summary, good quality and relatively cheap valuations indicate which stocks are among the most attractive to contrarian value investors. It is among these stocks that we can find real valuation errors. Once the market recognizes that these quality businesses are on sale, these prices often rebound.
What does this mean for potential investors?
Finding good quality stocks at cheap prices is a strategy used by some of the most successful investors in the world. But beware: these factors do not guarantee future returns and we have identified some areas of concern with Intercorp Financial Services which you can read about here.
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