Investors interested in Medical - Outpatient and Home Healthcare stocks are likely familiar with Quest Diagnostics (DGX) and The Pennant Group, Inc. (PNTG). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
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.
Right now, Quest Diagnostics is sporting a Zacks Rank of #2 (Buy), while The Pennant Group, Inc. has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that DGX has an improving earnings outlook. But this is only part of the picture for value investors.
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 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.
DGX currently has a forward P/E ratio of 17.92, while PNTG has a forward P/E of 36.46. We also note that DGX has a PEG ratio of 2.76. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. PNTG currently has a PEG ratio of 2.80.
Another notable valuation metric for DGX is its P/B ratio of 2.60. 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. By comparison, PNTG has a P/B of 5.41.
Based on these metrics and many more, DGX holds a Value grade of B, while PNTG has a Value grade of C.
DGX has seen stronger estimate revision activity and sports more attractive valuation metrics than PNTG, so it seems like value investors will conclude that DGX 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.
