Investors interested in Schools stocks are likely familiar with Afya (AFYA) and PowerSchool Holdings (PWSC). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to 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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Right now, Afya is sporting a Zacks Rank of #1 (Strong Buy), while PowerSchool Holdings has a Zacks Rank of #3 (Hold). This means that AFYA's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is only part of the picture for value investors.
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.
AFYA currently has a forward P/E ratio of 9.07, while PWSC has a forward P/E of 18.90. We also note that AFYA has a PEG ratio of 0.28. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. PWSC currently has a PEG ratio of 1.98.
Another notable valuation metric for AFYA is its P/B ratio of 1.52. 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, PWSC has a P/B of 1.66.
These are just a few of the metrics contributing to AFYA's Value grade of B and PWSC's Value grade of D.
AFYA 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 AFYA is likely the superior value option right now.
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