Investors looking for stocks in the Diversified Communication Services sector might want to consider either Telefonica Brasil (VIV) or Chunghwa (CHT). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great 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.
Telefonica Brasil and Chunghwa are sporting Zacks Ranks of #1 (Strong Buy) and #3 (Hold), respectively, right now. This means that VIV's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. 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.
VIV currently has a forward P/E ratio of 17.76, while CHT has a forward P/E of 25.24. We also note that VIV has a PEG ratio of 0.71. 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. CHT currently has a PEG ratio of 5.36.
Another notable valuation metric for VIV is its P/B ratio of 2.11. 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 2.56.
These are just a few of the metrics contributing to VIV's Value grade of B and CHT's Value grade of D.
VIV sticks out from CHT in both our Zacks Rank and Style Scores models, so value investors will likely feel that VIV is the better 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.
