SSUMY vs. FSS: Which Stock Is the Better Value Option?

Investors interested in stocks from the Diversified Operations sector have probably already heard of Sumitomo Corp. (SSUMY) and Federal Signal (FSS). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.

There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.

Currently, both Sumitomo Corp. and Federal Signal are holding a Zacks Rank of #2 (Buy). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that both of these companies have improving earnings outlooks. But this is just one piece of the puzzle for value investors.

Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their 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.

SSUMY currently has a forward P/E ratio of 8.92, while FSS has a forward P/E of 31.35. We also note that SSUMY has a PEG ratio of 1.88. 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. FSS currently has a PEG ratio of 2.24.

Another notable valuation metric for SSUMY is its P/B ratio of 1.11. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, FSS has a P/B of 6.02.

These metrics, and several others, help SSUMY earn a Value grade of A, while FSS has been given a Value grade of D.

Both SSUMY and FSS are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that SSUMY is the superior value option right now.

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

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