Investors with an interest in Financial - Investment Bank stocks have likely encountered both The Charles Schwab Corporation (SCHW) and Robinhood Markets, Inc. (HOOD). But which of these two companies is the best option for those looking for undervalued stocks? Let's 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 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, The Charles Schwab Corporation has a Zacks Rank of #2 (Buy), while Robinhood Markets, 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 SCHW has an improving earnings outlook. 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.
SCHW currently has a forward P/E ratio of 17.90, while HOOD has a forward P/E of 43.13. We also note that SCHW has a PEG ratio of 0.84. 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. HOOD currently has a PEG ratio of 1.67.
Another notable valuation metric for SCHW is its P/B ratio of 4.38. 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, HOOD has a P/B of 11.22.
Based on these metrics and many more, SCHW holds a Value grade of B, while HOOD has a Value grade of D.
SCHW stands above HOOD thanks to its solid earnings outlook, and based on these valuation figures, we also feel that SCHW 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.
