MCK vs. ALGN: Which Stock Is the Better Value Option?
Investors with an interest in Medical - Dental Supplies stocks have likely encountered both McKesson (MCK) and Align Technology (ALGN). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to take a closer look.
There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Right now, McKesson is sporting a Zacks Rank of #2 (Buy), while Align Technology 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 MCK has an improving earnings 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 grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
MCK currently has a forward P/E ratio of 9.11, while ALGN has a forward P/E of 35.31. We also note that MCK has a PEG ratio of 1.32. 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. ALGN currently has a PEG ratio of 1.45.
Another notable valuation metric for MCK is its P/B ratio of 3. 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, ALGN has a P/B of 10.74.
These are just a few of the metrics contributing to MCK's Value grade of A and ALGN's Value grade of C.
MCK stands above ALGN thanks to its solid earnings outlook, and based on these valuation figures, we also feel that MCK 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.