Value investing is often described as buying stocks with low valuations, but the more durable version of the strategy also asks whether the business can hold up while the market catches on. The Decent Value screen operationalizes that idea by first filtering for attractive valuation, then requiring at least decent profitability, financial health, and growth so that the low multiple is not simply a warning sign. TERADATA CORP (NYSE:TDC) is a stock that currently makes the cut.
A Valuation That Stands Out
The valuation part of the profile is strong. The fundamental report assigns Teradata an 8 out of 10 valuation rating, which is among the best in its peer group. Several independent price multiples point in the same direction:
- Trailing P/E: 9.04, cheaper than 94.18% of the industry
- Forward P/E: 9.44, cheaper than 89.45% of the industry
- EV/EBITDA: more attractive than 92% of industry peers
- Price/FCF: more attractive than 99.27% of industry peers
Those numbers look especially notable against the broader market. The S&P 500 trades at a trailing P/E of roughly 26.3, and the industry average P/E is above 34. A low multiple alone is not enough, of course. Investors may want to dig into the details behind these figures in this fundamental analysis report to see which assumptions are driving the valuation.
Profitability Is the Strongest Support
What makes the cheap valuation more interesting is the profitability profile. Teradata earns a profitability rating of 8 out of 10, with returns that comfortably beat most of its software industry peers:
- Return on assets: 19.65%, above 95.64% of the industry
- Return on equity: 75.58%, above 96.36% of the industry
- Return on invested capital: 13.56%, above 89.82% of the industry
- Profit margin: 24.93%, above 90.55% of the industry
For value investors, this matters because a low P/E can be a trap if the company is struggling to turn revenue into profit. Teradata is not in that position. It has been profitable in each of the past five years, with positive operating cash flow throughout that period.
Health and Growth: The Trade-Offs
The less favorable parts of the profile are financial health and growth. The health rating is a moderate 5 out of 10. The Altman-Z score of 1.20 suggests some balance sheet pressure, and the debt-to-equity ratio of 0.85 is higher than most peers. On the other hand, the debt-to-free-cash-flow ratio is just 0.82, meaning the company could cover its debt relatively quickly with operating cash flow. The current ratio of 1.30 also points to adequate short-term liquidity.
Growth is the weakest area, with a rating of 4 out of 10. Earnings per share have grown 28.94% over the past year and 14.43% annually over a longer period, but revenue has declined. The latest year showed a 4.97% drop in revenue, and the longer-term average is also negative. Estimates point to only modest revenue growth of about 2% per year going forward. Expected EPS growth of 7.46% per year is positive, but the PEG ratio is flagged as less compelling, which is a reminder that the low earnings multiple is partially explained by modest growth expectations.
One additional limitation for income-focused value investors is that Teradata does not pay a dividend. The investment case therefore depends on earnings power, free cash flow, and share repurchases rather than income.
Why It Still Fits the Decent Value Approach
The combination of a low valuation and strong profitability is what makes this stock relevant to the Decent Value methodology. A cheap stock with a healthy core business gives the market room to re-rate the shares over time, while the moderate health and growth scores serve as a reminder that the recovery is not guaranteed. That trade-off is exactly what this screen is designed to surface.
Investors who want to apply the same methodology more broadly can browse other stocks that currently match the Decent Value criteria. As with any value screen, the next step is to confirm the qualitative picture and decide whether the margin of safety is large enough to justify the wait.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice or a recommendation to buy or sell any security. Always conduct your own research and consider your risk tolerance before making investment decisions.
Read full article here »
View the Zacks #1 Rank List
Teradata (NYSE:TDC): A Value Stock With Strong Profitability
Value investing is often described as buying stocks with low valuations, but the more durable version of the strategy also asks whether the business can hold up while the market catches on. The Decent Value screen operationalizes that idea by first filtering for attractive valuation, then requiring at least decent profitability, financial health, and growth so that the low multiple is not simply a warning sign. TERADATA CORP (NYSE:TDC) is a stock that currently makes the cut.
A Valuation That Stands Out
The valuation part of the profile is strong. The fundamental report assigns Teradata an 8 out of 10 valuation rating, which is among the best in its peer group. Several independent price multiples point in the same direction:
Those numbers look especially notable against the broader market. The S&P 500 trades at a trailing P/E of roughly 26.3, and the industry average P/E is above 34. A low multiple alone is not enough, of course. Investors may want to dig into the details behind these figures in this fundamental analysis report to see which assumptions are driving the valuation.
Profitability Is the Strongest Support
What makes the cheap valuation more interesting is the profitability profile. Teradata earns a profitability rating of 8 out of 10, with returns that comfortably beat most of its software industry peers:
For value investors, this matters because a low P/E can be a trap if the company is struggling to turn revenue into profit. Teradata is not in that position. It has been profitable in each of the past five years, with positive operating cash flow throughout that period.
Health and Growth: The Trade-Offs
The less favorable parts of the profile are financial health and growth. The health rating is a moderate 5 out of 10. The Altman-Z score of 1.20 suggests some balance sheet pressure, and the debt-to-equity ratio of 0.85 is higher than most peers. On the other hand, the debt-to-free-cash-flow ratio is just 0.82, meaning the company could cover its debt relatively quickly with operating cash flow. The current ratio of 1.30 also points to adequate short-term liquidity.
Growth is the weakest area, with a rating of 4 out of 10. Earnings per share have grown 28.94% over the past year and 14.43% annually over a longer period, but revenue has declined. The latest year showed a 4.97% drop in revenue, and the longer-term average is also negative. Estimates point to only modest revenue growth of about 2% per year going forward. Expected EPS growth of 7.46% per year is positive, but the PEG ratio is flagged as less compelling, which is a reminder that the low earnings multiple is partially explained by modest growth expectations.
One additional limitation for income-focused value investors is that Teradata does not pay a dividend. The investment case therefore depends on earnings power, free cash flow, and share repurchases rather than income.
Why It Still Fits the Decent Value Approach
The combination of a low valuation and strong profitability is what makes this stock relevant to the Decent Value methodology. A cheap stock with a healthy core business gives the market room to re-rate the shares over time, while the moderate health and growth scores serve as a reminder that the recovery is not guaranteed. That trade-off is exactly what this screen is designed to surface.
Investors who want to apply the same methodology more broadly can browse other stocks that currently match the Decent Value criteria. As with any value screen, the next step is to confirm the qualitative picture and decide whether the margin of safety is large enough to justify the wait.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice or a recommendation to buy or sell any security. Always conduct your own research and consider your risk tolerance before making investment decisions.
Read full article here »