Investors with an interest in Medical - Products stocks have likely encountered both Medtronic (MDT) and EssilorLuxottica Unsponsored ADR (ESLOY). But which of these two companies is the best option for those looking for undervalued stocks? Let's 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 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.
Medtronic has a Zacks Rank of #2 (Buy), while EssilorLuxottica Unsponsored ADR has a Zacks Rank of #3 (Hold) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that MDT is likely seeing its earnings outlook improve to a greater extent. But this is just one piece of the puzzle for value investors.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their 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.
MDT currently has a forward P/E ratio of 18.06, while ESLOY has a forward P/E of 43.02. We also note that MDT has a PEG ratio of 2.69. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. ESLOY currently has a PEG ratio of 4.29.
Another notable valuation metric for MDT is its P/B ratio of 2.68. 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, ESLOY has a P/B of 3.77.
Based on these metrics and many more, MDT holds a Value grade of B, while ESLOY has a Value grade of C.
MDT has seen stronger estimate revision activity and sports more attractive valuation metrics than ESLOY, so it seems like value investors will conclude that MDT 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.
