STRA vs. UTI: Which Stock Is the Better Value Option?

Investors interested in Schools stocks are likely familiar with Strategic Education (STRA) and Universal Technical Institute (UTI). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.

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.

Right now, Strategic Education is sporting a Zacks Rank of #2 (Buy), while Universal Technical Institute has a Zacks Rank of #3 (Hold). This means that STRA's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. However, value investors will care about much more than just this.

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.

STRA currently has a forward P/E ratio of 15.09, while UTI has a forward P/E of 32.64. We also note that STRA has a PEG ratio of 1.01. 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. UTI currently has a PEG ratio of 2.18.

Another notable valuation metric for STRA is its P/B ratio of 1.26. 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, UTI has a P/B of 6.39.

These are just a few of the metrics contributing to STRA's Value grade of A and UTI's Value grade of C.

STRA stands above UTI thanks to its solid earnings outlook, and based on these valuation figures, we also feel that STRA is the superior value option right now.

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

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