Investors with an interest in Banks - Midwest stocks have likely encountered both Old Second Bancorp (OSBC) and Commerce Bancshares (CBSH). 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Right now, both Old Second Bancorp and Commerce Bancshares are sporting a Zacks Rank of # 2 (Buy). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. But this is just one piece of the puzzle for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether 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.
OSBC currently has a forward P/E ratio of 13.76, while CBSH has a forward P/E of 18.28. We also note that OSBC has a PEG ratio of 1.97. 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. CBSH currently has a PEG ratio of 1.98.
Another notable valuation metric for OSBC is its P/B ratio of 2.22. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, CBSH has a P/B of 2.75.
These metrics, and several others, help OSBC earn a Value grade of B, while CBSH has been given a Value grade of C.
Both OSBC and CBSH are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that OSBC is the superior value option right now.