Investors looking for stocks in the Financial Transaction Services sector might want to consider either Paypal (PYPL) or MasterCard (MA). 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Right now, Paypal is sporting a Zacks Rank of #2 (Buy), while MasterCard has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that PYPL likely has seen a stronger improvement to its earnings outlook than MA has recently. But this is just one piece of the puzzle for value investors.
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.
PYPL currently has a forward P/E ratio of 13.09, while MA has a forward P/E of 35.97. We also note that PYPL has a PEG ratio of 1.06. 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. MA currently has a PEG ratio of 2.41.
Another notable valuation metric for PYPL is its P/B ratio of 3.23. 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, MA has a P/B of 67.35.
These metrics, and several others, help PYPL earn a Value grade of A, while MA has been given a Value grade of D.
PYPL has seen stronger estimate revision activity and sports more attractive valuation metrics than MA, so it seems like value investors will conclude that PYPL 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.
