Investors interested in stocks from the Containers - Paper and Packaging sector have probably already heard of Greif (GEF) and Packaging Corp. (PKG). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, Greif has a Zacks Rank of #1 (Strong Buy), while Packaging Corp. 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 GEF has an improving earnings outlook. But this is only part of the picture 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.
GEF currently has a forward P/E ratio of 16.25, while PKG has a forward P/E of 19.53. We also note that GEF has a PEG ratio of 1.35. 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. PKG currently has a PEG ratio of 2.64.
Another notable valuation metric for GEF is its P/B ratio of 1.44. 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, PKG has a P/B of 3.99.
These are just a few of the metrics contributing to GEF's Value grade of A and PKG's Value grade of C.
GEF has seen stronger estimate revision activity and sports more attractive valuation metrics than PKG, so it seems like value investors will conclude that GEF 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.
