Investors interested in stocks from the Building Products - Miscellaneous sector have probably already heard of United Rentals (URI) and Simpson Manufacturing (SSD). 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Right now, United Rentals is sporting a Zacks Rank of #2 (Buy), while Simpson Manufacturing has a Zacks Rank of #4 (Sell). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that URI is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies 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.
URI currently has a forward P/E ratio of 6.46, while SSD has a forward P/E of 16.68. We also note that URI has a PEG ratio of 0.36. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. SSD currently has a PEG ratio of 3.34.
Another notable valuation metric for URI is its P/B ratio of 2.92. 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, SSD has a P/B of 2.99.
These are just a few of the metrics contributing to URI's Value grade of A and SSD's Value grade of D.
URI 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 URI is likely the superior value option right now.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.