Investors interested in stocks from the Utility - Water Supply sector have probably already heard of 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.
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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
California Water Service Group has a Zacks Rank of #2 (Buy), while American Water Works has a Zacks Rank of #3 (Hold) right now. Investors should feel comfortable knowing that CWT likely has seen a stronger improvement to its earnings outlook than AWK has recently. But this is just one piece of the puzzle 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.
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 17.73, while AWK has a forward P/E of 21.30. We also note that CWT has a PEG ratio of 2.02. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. AWK currently has a PEG ratio of 3.15.
Another notable valuation metric for CWT is its P/B ratio of 1.56. 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, AWK has a P/B of 2.33.
These are just a few of the metrics contributing to CWT's Value grade of B and AWK's Value grade of D.
CWT has seen stronger estimate revision activity and sports more attractive valuation metrics than AWK, so it seems like value investors will conclude that CWT is the superior option right now.
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American Water Works Company, Inc. (AWK) : 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.
