Investors interested in stocks from the Medical - Products sector have probably already heard of Zimmer Biomet (ZBH) and ResMed (RMD). 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Right now, Zimmer Biomet is sporting a Zacks Rank of #2 (Buy), while ResMed has a Zacks Rank of #3 (Hold). This means that ZBH's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. 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 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.
ZBH currently has a forward P/E ratio of 17.14, while RMD has a forward P/E of 33.27. We also note that ZBH has a PEG ratio of 2.33. 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. RMD currently has a PEG ratio of 3.23.
Another notable valuation metric for ZBH is its P/B ratio of 2.19. 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, RMD has a P/B of 8.05.
These metrics, and several others, help ZBH earn a Value grade of B, while RMD has been given a Value grade of D.
ZBH stands above RMD thanks to its solid earnings outlook, and based on these valuation figures, we also feel that ZBH is the superior value option right now.
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