Greene King: have Brexit blues led to domestic bargains?

One of the masters of value (and factor) investing is Jim O'Shaughnessy, the founder of O’Shaughnessy Asset Management (OSAM). In the 4th edition of his groundbreaking investment research tome What Works on Wall St, O’Shaughnessy showed that composite value factors based on a mix of metrics dramatically beat the market over a multi-decade period.

It was from this robust insight that Stockopedia’s Value Rank was born, its synergy coming from the following simple valuation ratios:

• Price to Book Value
• Price to Earnings
• Price to Free Cash Flow
• Dividend Yield %
• Price to Sales
• Earnings Yield %

Using this framework, mid cap pub and bar operator Greene King (LON:GNK) appears cheap. Here's why.

Greene King's Value Rank

We can see by using Greene King’s StockReport that the group has a:

• Rolling price to book value of 0.92,
• Rolling price to earnings ratio of 9.92
• Trailing twelve-month price to free cash flow of 15.2
• Rolling dividend yield of 5.27%
• Trailing twelve-month price to sales ratio of 0.90

When we add all of these together, we find that Greene King has a Value Rank of 80. Investing in high-value stocks requires finesse and a sturdy constitution but, when cheap stocks come good, the payoff can be large and sudden.

Greene King’s Value Rank of 80 puts it in the cheapest quartile of the stock market. That is certainly a promising jumping off point for our analysis but it is not the whole story.

What does this mean for potential investors?

Some of the best quality stocks in the market have defensible models that can deliver high levels of shareholder returns over the long term. But there are no guarantees and it's important to do your own research. Indeed, we've identified some areas of concern with Greene King that you can find out about here.