Investors with an interest in Media Conglomerates stocks have likely encountered both Pearson (PSO) and Walt Disney (DIS). 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Currently, Pearson has a Zacks Rank of #2 (Buy), while Walt Disney has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that PSO has an improving earnings 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.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
PSO currently has a forward P/E ratio of 14.63, while DIS has a forward P/E of 24.05. We also note that PSO has a PEG ratio of 1.38. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. DIS currently has a PEG ratio of 2.04.
Another notable valuation metric for PSO is its P/B ratio of 1.34. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, DIS has a P/B of 1.66.
These metrics, and several others, help PSO earn a Value grade of A, while DIS has been given a Value grade of C.
PSO stands above DIS thanks to its solid earnings outlook, and based on these valuation figures, we also feel that PSO is the superior value option right now.
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