Investors with an interest in Oil and Gas - Production and Pipelines stocks have likely encountered both Ultrapar Participacoes S.A. (UGP) and Pembina Pipeline (PBA). But which of these two companies is the best option for those looking for undervalued stocks? 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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, Ultrapar Participacoes S.A. has a Zacks Rank of #1 (Strong Buy), while Pembina Pipeline 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 UGP is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its 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.
UGP currently has a forward P/E ratio of 9.88, while PBA has a forward P/E of 14.47. We also note that UGP has a PEG ratio of 0.43. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. PBA currently has a PEG ratio of 4.82.
Another notable valuation metric for UGP is its P/B ratio of 1.22. 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, PBA has a P/B of 1.65.
Based on these metrics and many more, UGP holds a Value grade of A, while PBA has a Value grade of C.
UGP has seen stronger estimate revision activity and sports more attractive valuation metrics than PBA, so it seems like value investors will conclude that UGP is the superior option right now.
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