REV Group Inc (NYSE:REVG) Identified as a Potential Value Investment with Strong Fundamentals

Specialty vehicle manufacturer REV GROUP INC (NYSE:REVG) has been identified by a screening process made to find possible value investments. This approach looks for companies with good fundamental valuation scores, meaning they could be trading for less than their actual value, while also holding acceptable scores in profitability, financial condition, and growth. This mix is important for value investors, as it points to a company that is not just low-priced but is a sound business available at a good price, thus including a safety buffer.

Valuation Analysis

The central idea of value investing is finding a large difference between a company's market price and its actual value. REVG's valuation numbers indicate such a difference might be present, giving it a good Valuation Rating of 7 out of 10. The stock seems fairly priced, especially when its future growth possibilities are taken into account.

• Good Forward Earnings Multiple: With a Price-to-Earnings (P/E) ratio of 21.75, REVG is valued more affordably than 62% of similar companies. More significant is its Forward P/E ratio of 14.54, which is lower than 74% of the industry and much below the S&P 500 average.
• Priced for Growth: The low PEG ratio, which changes the P/E ratio for projected earnings growth, shows the stock's price is not high and could be low compared to its growth path.
• Good Free Cash Flow: The company's valuation seems even better based on its Price-to-Free Cash Flow ratio, which is more favorable than 85% of its rivals, indicating good cash creation relative to its share price.

For a value investor, these numbers are the first step. A low price by itself can be misleading, but when combined with sound fundamentals, it becomes a much more interesting possibility.

Financial Health and Profitability

A company's financial strength is essential for long-term value investing, as it makes sure the business can survive economic slowdowns and keep operating without trouble. REVG shows good financial condition, scoring a 7 out of 10, which is supported by several important advantages.

• Minimal Debt Level: A Debt-to-Equity ratio of 0.23 shows very little use of debt financing, a careful method that lowers risk. The company's Debt-to-Free Cash Flow ratio of 0.45 is very good, meaning it could pay off all its debts in just over five months, a sign of high solvency.
• Good Solvency Score: An Altman-Z score of 4.78 points to a very small short-term chance of financial trouble, doing better than 75% of the industry.
• Strong Profitability: The company's Profitability Rating of 7 is fueled by excellent returns on capital. Its Return on Equity (27.89%) and Return on Invested Capital (18.41%) are some of the top in its industry, performing better than over 93% of similar companies. This shows very effective use of shareholder capital.

These condition and profitability numbers are critical because they verify that the company is not only low-priced, but is a high-grade, well-managed operation with a solid balance sheet, exactly the type of business a value investor wants to purchase at a discount.

Growth Path

While strict value investing frequently concentrates on current assets and earnings, current views also think about a company's growth possibility. REVG shows a varied but getting better situation, with a Growth Rating of 5. Its past revenue growth has been flat, but there are clear good signs for what is ahead.

• Earnings Progress: The company's Earnings Per Share increased by a notable 45.45% over the last year, with a good past annual growth rate of 29.36%.
• Increasing Future Projections: Analysts believe this positive pattern will keep going, predicting EPS growth of over 40% each year in the next few years. This quickening from the past rate is a very hopeful signal.
• Reasonable Sales Growth: Revenue growth is projected to be more reasonable at about 5% each year, showing the profit expansion is probably caused by better margins and efficiency.

This growth picture supports the valuation argument. The market may not be completely valuing the expected jump in earnings, which might lead to a new price level for the stock as those earnings happen.

Conclusion and Further Research

REV Group presents a situation that fits well with value investing ideas. It trades at a sensible price, particularly on a forward-looking basis, while showing strong profitability and a good balance sheet. The expected quickening in earnings growth offers a possible trigger that the market may not have completely recognized. While its low dividend yield and past revenue patterns are acknowledged, the central financial strengths and price make it a stock deserving of more detailed study for those using a value method.

For investors interested in finding other companies that fit this profile of sound fundamentals paired with a good price, more research can be done using a predefined screen for decent value stocks.

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Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The opinions expressed are based on current fundamental data and are subject to change. All investments involve risk, including the possible loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.