Investors interested in stocks from the Automotive - Original Equipment sector have probably already heard of AB Volvo (VLVLY) and Ferrari $RACE (RACE). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Right now, AB Volvo is sporting a Zacks Rank of #2 (Buy), while Ferrari has a Zacks Rank of #3 (Hold). This means that VLVLY's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. However, value investors will care about much more than just this.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its current share price levels.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
VLVLY currently has a forward P/E ratio of 14.24, while RACE has a forward P/E of 31.43. We also note that VLVLY has a PEG ratio of 0.73. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. RACE currently has a PEG ratio of 3.37.
Another notable valuation metric for VLVLY is its P/B ratio of 3.23. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, RACE has a P/B of 17.47.
Based on these metrics and many more, VLVLY holds a Value grade of A, while RACE has a Value grade of D.
VLVLY sticks out from RACE in both our Zacks Rank and Style Scores models, so value investors will likely feel that VLVLY is the better option right now.
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