Back to top

Image: Bigstock

ADS vs. MA: Which Stock Should Value Investors Buy Now?

Read MoreHide Full Article

Investors interested in stocks from the Financial Transaction Services sector have probably already heard of Alliance Data Systems and MasterCard (MA - Free Report) . 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.

Alliance Data Systems and MasterCard are both sporting a Zacks Rank of # 2 (Buy) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that both of these companies have improving earnings outlooks. However, value investors will care about much more than just this.

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.

The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.

ADS currently has a forward P/E ratio of 5.50, while MA has a forward P/E of 43.92. We also note that ADS has a PEG ratio of 0.32. 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. MA currently has a PEG ratio of 2.03.

Another notable valuation metric for ADS is its P/B ratio of 2.43. 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, MA has a P/B of 53.71.

These are just a few of the metrics contributing to ADS's Value grade of A and MA's Value grade of D.

Both ADS and MA are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that ADS is the superior value option right now.


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Mastercard Incorporated (MA) - free report >>

Published in