Investors interested in stocks from the Medical - Biomedical and Genetics sector have probably already heard of GSK (GSK) and Acadia Pharmaceuticals (ACAD). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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 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, GSK is sporting a Zacks Rank of #2 (Buy), while Acadia Pharmaceuticals has a Zacks Rank of #3 (Hold). This means that GSK's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one factor that value investors are interested in.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its 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.
GSK currently has a forward P/E ratio of 8.75, while ACAD has a forward P/E of 41.36. We also note that GSK has a PEG ratio of 1.42. 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. ACAD currently has a PEG ratio of 6.61.
Another notable valuation metric for GSK is its P/B ratio of 4.52. 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, ACAD has a P/B of 4.87.
Based on these metrics and many more, GSK holds a Value grade of A, while ACAD has a Value grade of C.
GSK is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that GSK is likely the superior value 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.
