Investors interested in Business - Services stocks are likely familiar with Rentokil Initial PLC (RTO) and UL Solutions Inc. (ULS). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. 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.
Currently, Rentokil Initial PLC has a Zacks Rank of #2 (Buy), while UL Solutions Inc. has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that RTO has an improving earnings outlook. However, value investors will care about much more than just this.
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.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
RTO currently has a forward P/E ratio of 19.91, while ULS has a forward P/E of 28.45. We also note that RTO has a PEG ratio of 2.71. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. ULS currently has a PEG ratio of 6.51.
Another notable valuation metric for RTO is its P/B ratio of 3.01. 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, ULS has a P/B of 12.09.
These are just a few of the metrics contributing to RTO's Value grade of B and ULS's Value grade of C.
RTO sticks out from ULS in both our Zacks Rank and Style Scores models, so value investors will likely feel that RTO is the better 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.
