Investors interested in stocks from the Banks - Foreign sector have probably already heard of Banco Santander-Brazil (BSBR) and HDFC Bank (HDB). But which of these two companies is the best option for those looking for undervalued stocks? Let's 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Banco Santander-Brazil has a Zacks Rank of #2 (Buy), while HDFC Bank has a Zacks Rank of #4 (Sell) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that BSBR 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.
BSBR currently has a forward P/E ratio of 7.09, while HDB has a forward P/E of 22.06. We also note that BSBR has a PEG ratio of 0.63. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. HDB currently has a PEG ratio of 1.85.
Another notable valuation metric for BSBR is its P/B ratio of 0.87. 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, HDB has a P/B of 2.7.
These metrics, and several others, help BSBR earn a Value grade of B, while HDB has been given a Value grade of C.
BSBR has seen stronger estimate revision activity and sports more attractive valuation metrics than HDB, so it seems like value investors will conclude that BSBR is the superior option right now.
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Banco Santander Brasil SA (BSBR): Free Stock Analysis Report HDFC Bank Limited (HDB): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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