Investors with an interest in Financial - Investment Management stocks have likely encountered both Federated Hermes (FHI) and TPG Inc. (TPG). But which of these two stocks presents investors with the better value opportunity right now? 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Right now, Federated Hermes is sporting a Zacks Rank of #1 (Strong Buy), while TPG Inc. has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that FHI likely has seen a stronger improvement to its earnings outlook than TPG has recently. 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 Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
FHI currently has a forward P/E ratio of 10.32, while TPG has a forward P/E of 23.88. We also note that FHI has a PEG ratio of 0.52. 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. TPG currently has a PEG ratio of 1.04.
Another notable valuation metric for FHI is its P/B ratio of 3.26. 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, TPG has a P/B of 5.71.
These metrics, and several others, help FHI earn a Value grade of B, while TPG has been given a Value grade of D.
FHI sticks out from TPG in both our Zacks Rank and Style Scores models, so value investors will likely feel that FHI 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.
