Investors with an interest in Financial - Investment Management stocks have likely encountered both Affiliated Managers Group (AMG) and Ares Management (ARES). But which of these two companies is the best option for those looking for undervalued stocks? Let's 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.
Right now, Affiliated Managers Group is sporting a Zacks Rank of #2 (Buy), while Ares Management has a Zacks Rank of #3 (Hold). This means that AMG's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. However, value investors will care about much more than just this.
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.
AMG currently has a forward P/E ratio of 10.22, while ARES has a forward P/E of 29.04. We also note that AMG has a PEG ratio of 0.57. 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. ARES currently has a PEG ratio of 1.14.
Another notable valuation metric for AMG is its P/B ratio of 1.71. 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, ARES has a P/B of 6.74.
These are just a few of the metrics contributing to AMG's Value grade of A and ARES's Value grade of C.
AMG is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that AMG is likely the superior value option right now.
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Affiliated Managers Group, Inc. (AMG): Free Stock Analysis Report Ares Management Corporation (ARES): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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