SGIOY vs. ZTS: Which Stock Is the Better Value Option?

Investors interested in stocks from the Medical - Drugs sector have probably already heard of Shionogi & Co., Ltd. Unsponsored ADR (SGIOY) and Zoetis (ZTS). 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 is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.

Currently, Shionogi & Co., Ltd. Unsponsored ADR has a Zacks Rank of #2 (Buy), while Zoetis has a Zacks Rank of #3 (Hold). This means that SGIOY's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is only part of the picture for value investors.

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.

SGIOY currently has a forward P/E ratio of 13.68, while ZTS has a forward P/E of 18.36. We also note that SGIOY has a PEG ratio of 2.05. 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. ZTS currently has a PEG ratio of 2.16.

Another notable valuation metric for SGIOY is its P/B ratio of 1.78. 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, ZTS has a P/B of 10.26.

These metrics, and several others, help SGIOY earn a Value grade of B, while ZTS has been given a Value grade of C.

SGIOY 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 SGIOY is likely the superior value option right now.

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This article originally published on Zacks Investment Research (zacks.com).

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