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.
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 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 #2 (Buy), while Ferrari has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that ALSN likely has seen a stronger improvement to its earnings outlook than RACE has recently. However, value investors will care about much more than just this.
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 highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
ALSN currently has a forward P/E ratio of 14.41, while RACE has a forward P/E of 32.32. We also note that ALSN has a PEG ratio of 0.83. 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. RACE currently has a PEG ratio of 3.60.
Another notable valuation metric for ALSN is its P/B ratio of 5.63. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, RACE has a P/B of 19.16.
These are just a few of the metrics contributing to ALSN's Value grade of A and RACE's Value grade of D.
ALSN stands above RACE thanks to its solid earnings outlook, and based on these valuation figures, we also feel that ALSN is the superior value 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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