Investors looking for stocks in the Utility - Water Supply sector might want to consider either Veolia Environnement SA (VEOEY) or American Water Works (AWK). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Veolia Environnement SA has a Zacks Rank of #2 (Buy), while American Water Works has a Zacks Rank of #3 (Hold) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that VEOEY is likely seeing its earnings outlook improve to a greater extent. But this is just one piece of the puzzle for value investors.
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.
VEOEY currently has a forward P/E ratio of 17.10, while AWK has a forward P/E of 31.26. We also note that VEOEY has a PEG ratio of 1.46. 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. AWK currently has a PEG ratio of 3.87.
Another notable valuation metric for VEOEY is its P/B ratio of 1.31. 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, AWK has a P/B of 3.50.
These metrics, and several others, help VEOEY earn a Value grade of A, while AWK has been given a Value grade of D.
VEOEY has seen stronger estimate revision activity and sports more attractive valuation metrics than AWK, so it seems like value investors will conclude that VEOEY is the superior option right now.
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