NWG vs. SMFG: Which Stock Is the Better Value Option?

Investors looking for stocks in the Banks - Foreign sector might want to consider either NatWest Group (NWG) or Sumitomo Mitsui (SMFG). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.

We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.

NatWest Group and Sumitomo Mitsui are sporting Zacks Ranks of #1 (Strong Buy) and #4 (Sell), respectively, right now. This means that NWG's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one piece of the puzzle for value investors.

Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their 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.

NWG currently has a forward P/E ratio of 8.53, while SMFG has a forward P/E of 15.16. We also note that NWG has a PEG ratio of 0.56. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. SMFG currently has a PEG ratio of 0.87.

Another notable valuation metric for NWG is its P/B ratio of 1.18. 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, SMFG has a P/B of 1.4.

These are just a few of the metrics contributing to NWG's Value grade of B and SMFG's Value grade of D.

NWG sticks out from SMFG in both our Zacks Rank and Style Scores models, so value investors will likely feel that NWG is the better option right now.

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

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