Investors looking for stocks in the Diversified Communication Services sector might want to consider either Telefonica (TELFY) or Chunghwa (CHT). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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.
Telefonica has a Zacks Rank of #2 (Buy), while Chunghwa has a Zacks Rank of #3 (Hold) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that TELFY 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.
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.
TELFY currently has a forward P/E ratio of 7.71, while CHT has a forward P/E of 25.38. We also note that TELFY has a PEG ratio of 0.27. 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. CHT currently has a PEG ratio of 5.39.
Another notable valuation metric for TELFY is its P/B ratio of 0.91. 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, CHT has a P/B of 2.54.
These metrics, and several others, help TELFY earn a Value grade of A, while CHT has been given a Value grade of D.
TELFY is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that TELFY is likely 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.
