Investors looking for stocks in the Alternative Energy - Other sector might want to consider either Ameresco (AMRC) or Covanta (CVA). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Right now, both Ameresco and Covanta are sporting a Zacks Rank of # 2 (Buy). This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings outlook. But this is just one piece of the puzzle for value investors.
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.
The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
AMRC currently has a forward P/E ratio of 17.94, while CVA has a forward P/E of 157.30. We also note that AMRC has a PEG ratio of 1.03. 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. CVA currently has a PEG ratio of 10.49.
Another notable valuation metric for AMRC is its P/B ratio of 1.85. 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, CVA has a P/B of 4.08.
These metrics, and several others, help AMRC earn a Value grade of B, while CVA has been given a Value grade of C.
Both AMRC and CVA are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that AMRC is the superior value option right now.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Ameresco, Inc. (AMRC): Free Stock Analysis Report Covanta Holding Corporation (CVA): Free Stock Analysis Report To read this article on Zacks.com click here.