Investors with an interest in Financial Transaction Services stocks have likely encountered both Wex (WEX) and Visa (V). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Right now, Wex is sporting a Zacks Rank of #2 (Buy), while Visa has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that WEX is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their 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.
WEX currently has a forward P/E ratio of 10.27, while V has a forward P/E of 29.51. We also note that WEX has a PEG ratio of 1.30. 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. V currently has a PEG ratio of 2.24.
Another notable valuation metric for WEX is its P/B ratio of 5.62. 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, V has a P/B of 16.36.
Based on these metrics and many more, WEX holds a Value grade of A, while V has a Value grade of D.
WEX stands above V thanks to its solid earnings outlook, and based on these valuation figures, we also feel that WEX is 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.
