RTO vs. TRI: Which Stock Is the Better Value Option?

Investors interested in stocks from the Business - Services sector have probably already heard of Rentokil Initial PLC (RTO) and Thomson Reuters (TRI). 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.

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.

Both Rentokil Initial PLC and Thomson Reuters have a Zacks Rank of #2 (Buy) right now. 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.

Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.

RTO currently has a forward P/E ratio of 21.11, while TRI has a forward P/E of 35.53. We also note that RTO has a PEG ratio of 4.23. 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. TRI currently has a PEG ratio of 4.44.

Another notable valuation metric for RTO is its P/B ratio of 2.53. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, TRI has a P/B of 5.22.

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

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