Investors interested in Automotive - Original Equipment stocks are likely familiar with Allison Transmission (ALSN) and 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.
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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Currently, Allison Transmission has 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. But this is only part of the picture 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.
ALSN currently has a forward P/E ratio of 8.30, while RACE has a forward P/E of 44.01. We also note that ALSN has a PEG ratio of 1.19. 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. RACE currently has a PEG ratio of 2.80.
Another notable valuation metric for ALSN is its P/B ratio of 4.92. 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 20.31.
These are just a few of the metrics contributing to ALSN's Value grade of A and RACE's Value grade of C.
ALSN has seen stronger estimate revision activity and sports more attractive valuation metrics than RACE, so it seems like value investors will conclude that ALSN is the superior option right now.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
