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Are Investors Undervaluing Domtar (UFS) Right Now?

Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.

Looking at the history of these trends, perhaps none is more beloved than value investing. This strategy simply looks to identify companies that are being undervalued by the broader market. Value investors rely on traditional forms of analysis on key valuation metrics to find stocks that they believe are undervalued, leaving room for profits.

Luckily, Zacks has developed its own Style Scores system in an effort to find stocks with specific traits. Value investors will be interested in the system's "Value" category. Stocks with both "A" grades in the Value category and high Zacks Ranks are among the strongest value stocks on the market right now.

Domtar (UFS) is a stock many investors are watching right now. UFS is currently sporting a Zacks Rank of #2 (Buy), as well as a Value grade of A.

We should also highlight that UFS has a P/B ratio of 0.88. 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. This company's current P/B looks solid when compared to its industry's average P/B of 1.88. Over the past 12 months, UFS's P/B has been as high as 1.39 and as low as 0.88, with a median of 1.18.

Value investors also love the P/S ratio, which is calculated by simply dividing a stock's price with the company's sales. This is a prefered metric because revenue can't really be manipulated, so sales are often a truer performance indicator. UFS has a P/S ratio of 0.41. This compares to its industry's average P/S of 0.53.

Finally, our model also underscores that UFS has a P/CF ratio of 3.22. This data point considers a firm's operating cash flow and is frequently used to find companies that are undervalued when considering their solid cash outlook. UFS's current P/CF looks attractive when compared to its industry's average P/CF of 4.12. Over the past 52 weeks, UFS's P/CF has been as high as 6.28 and as low as 3.22, with a median of 4.44.

Value investors will likely look at more than just these metrics, but the above data helps show that Domtar is likely undervalued currently. And when considering the strength of its earnings outlook, UFS sticks out at as one of the market's strongest value stocks.

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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.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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