KE vs. HOCPY: Which Stock Is the Better Value Option?

Investors interested in stocks from the Electronics - Miscellaneous Products sector have probably already heard of Kimball Electronics (KE) and Hoya Corp. (HOCPY). 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.

Kimball Electronics and Hoya Corp. are sporting Zacks Ranks of #1 (Strong Buy) and #4 (Sell), respectively, right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that KE has an improving earnings outlook. 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 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.

KE currently has a forward P/E ratio of 21.05, while HOCPY has a forward P/E of 34.40. We also note that KE has a PEG ratio of 1.05. 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. HOCPY currently has a PEG ratio of 2.99.

Another notable valuation metric for KE is its P/B ratio of 1.21. 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, HOCPY has a P/B of 7.58.

These metrics, and several others, help KE earn a Value grade of A, while HOCPY has been given a Value grade of D.

KE has seen stronger estimate revision activity and sports more attractive valuation metrics than HOCPY, so it seems like value investors will conclude that KE is the superior option right now.

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

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