Investors looking for stocks in the Internet - Commerce sector might want to consider either Expedia (EXPE) or MercadoLibre (MELI). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Expedia has a Zacks Rank of #2 (Buy), while MercadoLibre has a Zacks Rank of #4 (Sell) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that EXPE is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.
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.
EXPE currently has a forward P/E ratio of 18.50, while MELI has a forward P/E of 51.95. We also note that EXPE has a PEG ratio of 1.05. 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. MELI currently has a PEG ratio of 1.50.
Another notable valuation metric for EXPE is its P/B ratio of 12.79. 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, MELI has a P/B of 17.06.
These metrics, and several others, help EXPE earn a Value grade of B, while MELI has been given a Value grade of D.
EXPE has seen stronger estimate revision activity and sports more attractive valuation metrics than MELI, so it seems like value investors will conclude that EXPE is the superior 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.
