Investors interested in stocks from the Financial - Mortgage & Related Services sector have probably already heard of PennyMac Financial (PFSI) and Zillow Group (ZG). But which of these two stocks presents investors with the better value opportunity right now? 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.
PennyMac Financial and Zillow Group are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This means that PFSI's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one piece of the puzzle 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 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.
PFSI currently has a forward P/E ratio of 11.48, while ZG has a forward P/E of 40.74. We also note that PFSI has a PEG ratio of 0.80. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. ZG currently has a PEG ratio of 1.28.
Another notable valuation metric for PFSI is its P/B ratio of 1.66. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, ZG has a P/B of 3.3.
These metrics, and several others, help PFSI earn a Value grade of B, while ZG has been given a Value grade of D.
PFSI has seen stronger estimate revision activity and sports more attractive valuation metrics than ZG, so it seems like value investors will conclude that PFSI is the superior option right now.
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PennyMac Financial Services, Inc. (PFSI): Free Stock Analysis Report Zillow Group, Inc. (ZG): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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