Investors with an interest in Electronics - Miscellaneous Products stocks have likely encountered both Timken (TKR) and Garmin (GRMN). 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.
Timken and Garmin are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. Investors should feel comfortable knowing that TKR likely has seen a stronger improvement to its earnings outlook than GRMN has recently. But this is just one factor that value investors are interested in.
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.
TKR currently has a forward P/E ratio of 22.41, while GRMN has a forward P/E of 25.03. We also note that TKR has a PEG ratio of 1.65. 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. GRMN currently has a PEG ratio of 2.82.
Another notable valuation metric for TKR is its P/B ratio of 2.85. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, GRMN has a P/B of 4.96.
These are just a few of the metrics contributing to TKR's Value grade of B and GRMN's Value grade of D.
TKR stands above GRMN thanks to its solid earnings outlook, and based on these valuation figures, we also feel that TKR is the superior value option right now.
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Garmin Ltd. (GRMN) : Free Stock Analysis Report
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.
