Investors interested in stocks from the Automotive - Domestic sector have probably already heard of General Motors (GM) and Federal Signal (FSS). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
General Motors and Federal Signal are sporting Zacks Ranks of #1 (Strong Buy) and #3 (Hold), respectively, right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that GM has an improving earnings 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.
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.
GM currently has a forward P/E ratio of 7.14, while FSS has a forward P/E of 26.89. We also note that GM has a PEG ratio of 0.84. 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. FSS currently has a PEG ratio of 1.92.
Another notable valuation metric for GM is its P/B ratio of 1. 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, FSS has a P/B of 5.16.
These metrics, and several others, help GM earn a Value grade of A, while FSS has been given a Value grade of C.
GM stands above FSS thanks to its solid earnings outlook, and based on these valuation figures, we also feel that GM is the superior value option right now.
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General Motors Company (GM): Free Stock Analysis Report Federal Signal Corporation (FSS): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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