Investors interested in stocks from the Wireless Equipment sector have probably already heard of Ericsson (ERIC) and InterDigital (IDCC). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive 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.
Ericsson and InterDigital are both sporting a Zacks Rank of #2 (Buy) right now. Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. But this is only part of the picture for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its 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.
ERIC currently has a forward P/E ratio of 14.26, while IDCC has a forward P/E of 25.72. We also note that ERIC has a PEG ratio of 1.69. 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. IDCC currently has a PEG ratio of 1.71.
Another notable valuation metric for ERIC is its P/B ratio of 3.14. 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, IDCC has a P/B of 8.47.
These metrics, and several others, help ERIC earn a Value grade of B, while IDCC has been given a Value grade of C.
Both ERIC and IDCC are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that ERIC is the superior value option right now.
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Ericsson (ERIC): Free Stock Analysis Report InterDigital, Inc. (IDCC): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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