Investors interested in stocks from the Banks - Foreign sector have probably already heard of Banco Bilbao (BBVA) and Royal Bank (RY). But which of these two companies is the best option for those looking for undervalued stocks? 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Banco Bilbao has a Zacks Rank of #2 (Buy), while Royal Bank has a Zacks Rank of #4 (Sell) right now. Investors should feel comfortable knowing that BBVA likely has seen a stronger improvement to its earnings outlook than RY has recently. But this is just one factor that value investors are interested in.
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.
BBVA currently has a forward P/E ratio of 10.88, while RY has a forward P/E of 13.53. We also note that BBVA has a PEG ratio of 1.06. 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. RY currently has a PEG ratio of 1.38.
Another notable valuation metric for BBVA is its P/B ratio of 1.62. 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, RY has a P/B of 2.27.
These metrics, and several others, help BBVA earn a Value grade of B, while RY has been given a Value grade of C.
BBVA sticks out from RY in both our Zacks Rank and Style Scores models, so value investors will likely feel that BBVA is the better option right now.
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Banco Bilbao Viscaya Argentaria S.A. (BBVA): Free Stock Analysis Report Royal Bank Of Canada (RY): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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