Investors interested in Manufacturing - Tools & Related Products stocks are likely familiar with Kennametal (KMT) and Sandvik AB (SDVKY). 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 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, Kennametal has a Zacks Rank of #1 (Strong Buy), while Sandvik AB has a Zacks Rank of #2 (Buy). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that KMT is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture 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 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.
KMT currently has a forward P/E ratio of 22.19, while SDVKY has a forward P/E of 26.53. We also note that KMT has a PEG ratio of 0.84. 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. SDVKY currently has a PEG ratio of 1.77.
Another notable valuation metric for KMT is its P/B ratio of 2.26. 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, SDVKY has a P/B of 5.45.
These are just a few of the metrics contributing to KMT's Value grade of B and SDVKY's Value grade of D.
KMT stands above SDVKY thanks to its solid earnings outlook, and based on these valuation figures, we also feel that KMT is the superior value option right now.
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Kennametal Inc. (KMT): Free Stock Analysis Report Sandvik AB (SDVKY): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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