Investors interested in Automotive - Original Equipment stocks are likely familiar with Allison Transmission (ALSN) and Ferrari (RACE). 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 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.
Both Allison Transmission and Ferrari have a Zacks Rank of # 2 (Buy) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. But this is just one piece of the puzzle 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.
ALSN currently has a forward P/E ratio of 7.52, while RACE has a forward P/E of 43.39. We also note that ALSN has a PEG ratio of 1.07. 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. RACE currently has a PEG ratio of 2.93.
Another notable valuation metric for ALSN is its P/B ratio of 4.82. 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, RACE has a P/B of 18.75.
These metrics, and several others, help ALSN earn a Value grade of A, while RACE has been given a Value grade of C.
Both ALSN and RACE are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that ALSN is the superior value option right now.
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