MD or HQY: Which Is the Better Value Stock Right Now?

Investors interested in stocks from the Medical Services sector have probably already heard of Pediatrix Medical Group (MD) and HealthEquity (HQY). But which of these two companies is the best option for those looking for undervalued stocks? 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 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, Pediatrix Medical Group has a Zacks Rank of #2 (Buy), while HealthEquity has a Zacks Rank of #3 (Hold). This means that MD'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 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.

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.

MD currently has a forward P/E ratio of 8.01, while HQY has a forward P/E of 27.39. We also note that MD has a PEG ratio of 0.84. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. HQY currently has a PEG ratio of 1.31.

Another notable valuation metric for MD is its P/B ratio of 1.44. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, HQY has a P/B of 4.12.

These metrics, and several others, help MD earn a Value grade of B, while HQY has been given a Value grade of D.

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

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

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