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GS vs. GCAP: Which Stock Should Value Investors Buy Now?

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Investors interested in Financial - Investment Bank stocks are likely familiar with Goldman Sachs (GS - Free Report) and Gain Capital . 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 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.

Right now, Goldman Sachs is sporting a Zacks Rank of #2 (Buy), while Gain Capital has a Zacks Rank of #5 (Strong Sell). Investors should feel comfortable knowing that GS likely has seen a stronger improvement to its earnings outlook than GCAP has recently. But this is just one piece of the puzzle for value investors.

Value investors are also interested in a number of tried-and-true valuation metrics that help show when 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.

GS currently has a forward P/E ratio of 9.20, while GCAP has a forward P/E of 10.22. We also note that GS has a PEG ratio of 0.73. 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. GCAP currently has a PEG ratio of 1.36.

Another notable valuation metric for GS is its P/B ratio of 1. 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, GCAP has a P/B of 1.14.

Based on these metrics and many more, GS holds a Value grade of B, while GCAP has a Value grade of D.

GS 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 GS is likely the superior value option right now.


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