AOS or KNYJY: Which Is the Better Value Stock Right Now?

Investors interested in stocks from the Manufacturing - Electronics sector have probably already heard of A.O. Smith (AOS) and Kone Oyj Unsponsored ADR (KNYJY). 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 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.

A.O. Smith and Kone Oyj Unsponsored ADR are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that AOS is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.

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.

AOS currently has a forward P/E ratio of 18.03, while KNYJY has a forward P/E of 28.33. We also note that AOS has a PEG ratio of 1.50. 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. KNYJY currently has a PEG ratio of 2.96.

Another notable valuation metric for AOS is its P/B ratio of 5.25. 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, KNYJY has a P/B of 11.43.

These metrics, and several others, help AOS earn a Value grade of B, while KNYJY has been given a Value grade of C.

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

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

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