Investors interested in stocks from the Medical - Drugs sector have probably already heard of United Therapeutics (UTHR) and Madrigal (MDGL). But which of these two companies is the best option for those looking for undervalued stocks? 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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Right now, United Therapeutics is sporting a Zacks Rank of #2 (Buy), while Madrigal has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that UTHR is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their 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.
UTHR currently has a forward P/E ratio of 18.10, while MDGL has a forward P/E of 184.79. We also note that UTHR has a PEG ratio of 2.61. 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. MDGL currently has a PEG ratio of 3.97.
Another notable valuation metric for UTHR is its P/B ratio of 3.29. 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, MDGL has a P/B of 20.37.
Based on these metrics and many more, UTHR holds a Value grade of B, while MDGL has a Value grade of D.
UTHR 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 UTHR is likely the superior value option right now.
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United Therapeutics Corporation (UTHR): Free Stock Analysis Report Madrigal Pharmaceuticals, Inc. (MDGL): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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