Investors interested in Medical - Outpatient and Home Healthcare stocks are likely familiar with Encompass Health (EHC) and Chemed (CHE). 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Encompass Health and Chemed are both sporting a Zacks Rank of # 2 (Buy) right now. Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. But this is just one piece of the puzzle for value investors.
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.
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.
EHC currently has a forward P/E ratio of 22.81, while CHE has a forward P/E of 28.93. We also note that EHC has a PEG ratio of 1.91. 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. CHE currently has a PEG ratio of 2.89.
Another notable valuation metric for EHC is its P/B ratio of 5.31. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, CHE has a P/B of 9.24.
These are just a few of the metrics contributing to EHC's Value grade of B and CHE's Value grade of C.
Both EHC and CHE are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that EHC is the superior value 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.