Investors interested in Aerospace - Defense Equipment stocks are likely familiar with Bae Systems PLC (BAESY) and Rolls-Royce Holdings PLC (RYCEY). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Both Bae Systems PLC and Rolls-Royce Holdings PLC have a Zacks Rank of #2 (Buy) right now. 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 just one factor that value investors are interested in.
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.
BAESY currently has a forward P/E ratio of 23.35, while RYCEY has a forward P/E of 33.50. We also note that BAESY has a PEG ratio of 1.56. 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. RYCEY currently has a PEG ratio of 1.97.
Another notable valuation metric for BAESY is its P/B ratio of 5.07. 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, RYCEY has a P/B of 38.73.
These are just a few of the metrics contributing to BAESY's Value grade of B and RYCEY's Value grade of D.
Both BAESY and RYCEY are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that BAESY is the superior value option right now.
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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.
