Investors interested in stocks from the Wireless Equipment sector have probably already heard of Ericsson (ERIC) and Motorola (MSI). 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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Right now, both Ericsson and Motorola are sporting a Zacks Rank of #2 (Buy). Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. But this is just one piece of the puzzle for value investors.
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.
ERIC currently has a forward P/E ratio of 16.56, while MSI has a forward P/E of 25.92. We also note that ERIC has a PEG ratio of 1.96. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. MSI currently has a PEG ratio of 2.86.
Another notable valuation metric for ERIC is its P/B ratio of 3.36. 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, MSI has a P/B of 29.82.
These metrics, and several others, help ERIC earn a Value grade of A, while MSI has been given a Value grade of D.
Both ERIC and MSI are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that ERIC is the superior value option right now.
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Ericsson (ERIC): Free Stock Analysis Report Motorola Solutions, Inc. (MSI): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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