Investors with an interest in Financial - Miscellaneous Services stocks have likely encountered both Virtu Financial (VIRT) and Moody's (MCO). 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.
Right now, both Virtu Financial and Moody's are sporting a Zacks Rank of #2 (Buy). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that both of these companies have improving earnings outlooks. However, value investors will care about much more than just this.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether 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.
VIRT currently has a forward P/E ratio of 8.42, while MCO has a forward P/E of 31.70. We also note that VIRT has a PEG ratio of 1.23. 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. MCO currently has a PEG ratio of 2.42.
Another notable valuation metric for VIRT is its P/B ratio of 3.37. 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, MCO has a P/B of 22.8.
These metrics, and several others, help VIRT earn a Value grade of B, while MCO has been given a Value grade of F.
Both VIRT and MCO are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that VIRT is the superior value option right now.
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Virtu Financial, Inc. (VIRT): Free Stock Analysis Report Moody's Corporation (MCO): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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