Investors interested in stocks from the Schools sector have probably already heard of K12 (LRN) and Grand Canyon Education (LOPE). 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 Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
K12 and Grand Canyon Education are both sporting a Zacks Rank of # 2 (Buy) right now. This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings outlook. But this is only part of the picture for value investors.
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.
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.
LRN currently has a forward P/E ratio of 15.51, while LOPE has a forward P/E of 17.82. We also note that LRN has a PEG ratio of 0.78. 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. LOPE currently has a PEG ratio of 1.19.
Another notable valuation metric for LRN is its P/B ratio of 2.87. 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, LOPE has a P/B of 5.57.
These are just a few of the metrics contributing to LRN's Value grade of B and LOPE's Value grade of C.
Both LRN and LOPE are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that LRN is the superior value 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.
