Is Terry's stock the best value in the S&P 500?

Terry Rae Inc. (NYSE: PFE)The stocks are relatively cheap. I can easily substantiate this claim. This large drug maker's shares trade at a forward earnings multiple of less than 0.5%.Standard & Poor's 500Index and the S&P 500 Healthcare sector. This meets the definition of "relatively inexpensive".

However, I wouldn't say that Terry is the cheapest stock in the S&P 500. At least, I wouldn't have said that until I saw something that surprised me recently, which prompted me to wonder if Terry Rae could possibly be the cheapest stock in this widely watched index.

Shockingly Low Valuation Indicators

First of all, I have to admit that Terry is absolutely right.faultThe cheapest stocks in the S&P 500 index, as measured by the 12-month trailing P/E or forward P/E ratio. You can find dozens of stocks with even lower P/E ratios.

But the price-to-earnings (PEG) ratio is another story. Yahoo! Finance has Terry's P/E ratio at 0.27, a figure it obtained from Morningstar, a leading financial services firm. From this perspective, an attractive PEG ratio is one that is less than 1.0. A PEG ratio of 0.27 is surprisingly low.

Is Terry the cheapest stock in the S&P 500 according to its PEG ratio? No, but it seems to be highly competitive. According to Yahoo!EQT PEG ratio of 0.2.

Keep in mind that you may find different PEG ratios for Terry & Co. on other websites. One possible reason for this is that financial services companies use different forward-looking periods when forecasting growth. Morningstar's PEG ratio includes a five-year growth forecast. In addition, different analysts may have different growth forecasts for the same period.

Questioning Terry's Ultra-Low PEG Ratio

I am sometimes skeptical when I read surprising information. Being familiar with Terry's business, I was skeptical of the company's 0.27 P/E ratio.

The PEG ratio is calculated by dividing a stock's P/E ratio for the past 12 months by its projected annual growth rate. The P/E ratio of Terry's for the past 12 months is slightly above 72. To achieve a P/E ratio of 0.27, the company would have to grow its earnings at an average annual rate of close to 267%. I don't think Terry's will be able to come close to this level of growth in the next five years.

The large drugmaker's adjusted earnings for the fourth quarter of 2023 plunged by $91% due to declining sales of COVID-19. Terry & Co.'s guidance calls for full-year 2024 adjusted earnings growth of about $17%. That's good, but it falls short of the $267% growth rate.far awayThe

In the coming years, Terry will face a patent cliff. Several blockbuster drugs, including Eliquis, Ibrance, Inlyta, Xeljanz, Xtandi, and Vyndaqel, will lose patent exclusivity. Terrific expects the loss of these exclusive rights to result in a reduction in annual revenues of approximately $17 billion by 2030.

However, the company believes that its new product launches will be enough to offset the impact of the looming patent cliff. The company also expects the business development deals to generate an additional $25 billion in annual revenue by 2030. However, Terry expects revenues to grow at a compound annual growth rate of 10% between 2025 and 2030. I don't think earnings will outpace revenues by 26.7 times. I also doubt that Terry will do so.

Cheap, but no.in that caselet sb. off lightly

It seems to me that Terry's actual P/E ratio is not as low as 0.27. I suspect the Yahoo Finance (or Morningstar) data source is wrong.

There are two important takeaways for investors from my investigation into the suspiciously low PEG ratios of Terry & Co. First, don't make investment decisions based solely on what you see on the Internet. Second, understand a company's business well enough to be able to spot potentially suspicious data.

Having said that, I still like Terrific, and I think the stock is a solid choice for income and value investors. Terrific is cheap. I just don'tin that caseCheap.

Should you invest $1,000 in Terry's now?

Consider the following before buying Terry's stock:

Motley Fool Stock AdvisorA team of analysts has just named what they think is the best name for investors to buy right now.10Only one stock, ......煇, was not included. These 10 stocks are expected to generate huge returns over the next few years.

Stock AdvisorIt provides investors with an easy-to-understand blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. Since 2002, StockAdvisorThe service has more than doubled the return on the S&P 500 Index.

View 10 stocks only

*Stock Advisory Rates as of April 8, 2024

Keith Speights owns shares of Terry's. The Motley Fool has a position in Terry's and recommends Terry's. The Motley Fool has a disclosure policy.

Is Terry's Stock the Best Value in the S&P 500? This article was originally published in The Motley Fool.