Investors interested in Banks - Foreign stocks are likely familiar with Shinhan Financial (SHG) and Toronto-Dominion Bank (TD). But which of these two stocks presents investors with the better value opportunity right now? 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Currently, Shinhan Financial has a Zacks Rank of #1 (Strong Buy), while Toronto-Dominion Bank has a Zacks Rank of #2 (Buy). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that SHG has an improving earnings outlook. 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.
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.
SHG currently has a forward P/E ratio of 5.81, while TD has a forward P/E of 10.89. We also note that SHG has a PEG ratio of 0.81. 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. TD currently has a PEG ratio of 1.42.
Another notable valuation metric for SHG is its P/B ratio of 0.56. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, TD has a P/B of 1.82.
These metrics, and several others, help SHG earn a Value grade of A, while TD has been given a Value grade of C.
SHG stands above TD thanks to its solid earnings outlook, and based on these valuation figures, we also feel that SHG is the superior value option right now.
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