Investors interested in stocks from the Gaming sector have probably already heard of PENN Entertainment (PENN) and Red Rock Resorts (RRR). 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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, PENN Entertainment has a Zacks Rank of #2 (Buy), while Red Rock Resorts has a Zacks Rank of #4 (Sell). Investors should feel comfortable knowing that PENN likely has seen a stronger improvement to its earnings outlook than RRR has recently. But this is just one factor that value investors are interested in.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks 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.
PENN currently has a forward P/E ratio of 25.22, while RRR has a forward P/E of 32.09. We also note that PENN has a PEG ratio of 0.60. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. RRR currently has a PEG ratio of 2.29.
Another notable valuation metric for PENN is its P/B ratio of 0.87. 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, RRR has a P/B of 20.73.
These metrics, and several others, help PENN earn a Value grade of B, while RRR has been given a Value grade of C.
PENN stands above RRR thanks to its solid earnings outlook, and based on these valuation figures, we also feel that PENN is 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.
