Investors interested in stocks from the Automotive - Original Equipment sector have probably already heard of Allison Transmission (ALSN) and Modine (MOD). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. 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, both Allison Transmission and Modine are sporting a Zacks Rank of #1 (Strong Buy). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. But this is only part of the picture for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its 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.
ALSN currently has a forward P/E ratio of 12.03, while MOD has a forward P/E of 45.63. We also note that ALSN has a PEG ratio of 1.21. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. MOD currently has a PEG ratio of 1.34.
Another notable valuation metric for ALSN is its P/B ratio of 5.26. 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, MOD has a P/B of 10.24.
Based on these metrics and many more, ALSN holds a Value grade of A, while MOD has a Value grade of D.
Both ALSN and MOD are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that ALSN is the superior value option right now.
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See Our Newest 5 Stocks Set to Double Picks >>Allison Transmission Holdings, Inc. (ALSN) : Free Stock Analysis Report
Modine Manufacturing Company (MOD) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
