Investors interested in stocks from the Media Conglomerates sector have probably already heard of Pearson (PSO) and Walt Disney (DIS). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Pearson and Walt Disney are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This means that PSO's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. However, value investors will care about much more than just this.
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.
The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
PSO currently has a forward P/E ratio of 15.19, while DIS has a forward P/E of 25.30. We also note that PSO has a PEG ratio of 0.88. 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. DIS currently has a PEG ratio of 2.47.
Another notable valuation metric for PSO is its P/B ratio of 1.35. 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, DIS has a P/B of 1.84.
These are just a few of the metrics contributing to PSO's Value grade of B and DIS's Value grade of C.
PSO has seen stronger estimate revision activity and sports more attractive valuation metrics than DIS, so it seems like value investors will conclude that PSO is the superior 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.
