Investors with an interest in Utility - Water Supply stocks have likely encountered both California Water Service Group (CWT) and American Water Works (AWK). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great 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.
California Water Service Group and American Water Works are sporting Zacks Ranks of #2 (Buy) and #4 (Sell), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that CWT is likely seeing its earnings outlook improve to a greater extent. But this is just one factor that value investors are interested in.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their current share price levels.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
CWT currently has a forward P/E ratio of 20.79, while AWK has a forward P/E of 24.73. We also note that CWT has a PEG ratio of 2.37. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. AWK currently has a PEG ratio of 3.39.
Another notable valuation metric for CWT is its P/B ratio of 1.78. 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, AWK has a P/B of 2.59.
These metrics, and several others, help CWT earn a Value grade of B, while AWK has been given a Value grade of D.
CWT sticks out from AWK in both our Zacks Rank and Style Scores models, so value investors will likely feel that CWT is the better 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.
