Investors looking for stocks in the Automotive - Original Equipment sector might want to consider either Allison Transmission (ALSN) or Ferrari (RACE). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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.
Right now, Allison Transmission is sporting a Zacks Rank of #1 (Strong Buy), while Ferrari has a Zacks Rank of #5 (Strong Sell). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that ALSN is likely seeing its earnings outlook improve to a greater extent. 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.
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.
ALSN currently has a forward P/E ratio of 12.38, while RACE has a forward P/E of 31.39. We also note that ALSN has a PEG ratio of 1.25. 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. RACE currently has a PEG ratio of 3.67.
Another notable valuation metric for ALSN is its P/B ratio of 4.96. 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, RACE has a P/B of 18.68.
Based on these metrics and many more, ALSN holds a Value grade of B, while RACE has a Value grade of F.
ALSN has seen stronger estimate revision activity and sports more attractive valuation metrics than RACE, so it seems like value investors will conclude that ALSN is the superior option right now.
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Allison Transmission Holdings, Inc. (ALSN): Free Stock Analysis Report Ferrari N.V. (RACE): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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