Investors with an interest in Business - Services stocks have likely encountered both Rentokil Initial PLC (RTO) and Thomson Reuters (TRI). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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 Rentokil Initial PLC and Thomson Reuters are holding a Zacks Rank of #2 (Buy). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. But this is only part of the picture for value investors.
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 Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
RTO currently has a forward P/E ratio of 23.19, while TRI has a forward P/E of 42.46. We also note that RTO has a PEG ratio of 5.16. 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. TRI currently has a PEG ratio of 5.31.
Another notable valuation metric for RTO is its P/B ratio of 2.77. 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, TRI has a P/B of 5.84.
Based on these metrics and many more, RTO holds a Value grade of B, while TRI has a Value grade of D.
Both RTO and TRI are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that RTO is the superior value option right now.
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Rentokil Initial PLC (RTO): Free Stock Analysis Report Thomson Reuters Corp (TRI): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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