HSBC or HDB: Which Is the Better Value Stock Right Now?

Investors looking for stocks in the Banks - Foreign sector might want to consider either HSBC (HSBC) or HDFC Bank (HDB). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to take a closer look.

We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.

Currently, HSBC has a Zacks Rank of #1 (Strong Buy), while HDFC Bank has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that HSBC is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.

Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their current share price levels.

Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.

HSBC currently has a forward P/E ratio of 9.46, while HDB has a forward P/E of 22.38. We also note that HSBC has a PEG ratio of 1.47. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. HDB currently has a PEG ratio of 1.82.

Another notable valuation metric for HSBC is its P/B ratio of 1.15. 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, HDB has a P/B of 2.74.

Based on these metrics and many more, HSBC holds a Value grade of B, while HDB has a Value grade of D.

HSBC has seen stronger estimate revision activity and sports more attractive valuation metrics than HDB, so it seems like value investors will conclude that HSBC is the superior option right now.

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This article originally published on Zacks Investment Research (zacks.com).

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