FLS vs. XYL: Which Stock Is the Better Value Option?
Investors interested in stocks from the Manufacturing - General Industrial sector have probably already heard of Flowserve (FLS) and Xylem (XYL). 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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Right now, Flowserve is sporting a Zacks Rank of #2 (Buy), while Xylem has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that FLS 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 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 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.
FLS currently has a forward P/E ratio of 20.31, while XYL has a forward P/E of 51.33. We also note that FLS has a PEG ratio of 2.93. 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. XYL currently has a PEG ratio of 5.13.
Another notable valuation metric for FLS is its P/B ratio of 2.25. 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, XYL has a P/B of 4.68.
Based on these metrics and many more, FLS holds a Value grade of B, while XYL has a Value grade of D.
FLS has seen stronger estimate revision activity and sports more attractive valuation metrics than XYL, so it seems like value investors will conclude that FLS 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.