Investors interested in stocks from the Diversified Communication Services sector have probably already heard of Telefonica (TELFY) and PT Telekomunikasi (TLK). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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 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, Telefonica has a Zacks Rank of #2 (Buy), while PT Telekomunikasi 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 TELFY has an improving earnings outlook. However, value investors will care about much more than just this.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether 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.
TELFY currently has a forward P/E ratio of 8.02, while TLK has a forward P/E of 13.56. We also note that TELFY has a PEG ratio of 0.28. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. TLK currently has a PEG ratio of 2.85.
Another notable valuation metric for TELFY is its P/B ratio of 0.95. 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, TLK has a P/B of 2.22.
These metrics, and several others, help TELFY earn a Value grade of A, while TLK has been given a Value grade of C.
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.
