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SFM vs. SOVO: Which Stock Is the Better Value Option?
Investors interested in stocks from the Food - Natural Foods Products sector have probably already heard of Sprouts Farmers (SFM - Free Report) and Sovos Brands, Inc. (SOVO - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? 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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Sprouts Farmers has a Zacks Rank of #1 (Strong Buy), while Sovos Brands, Inc. has a Zacks Rank of #3 (Hold) right now. This means that SFM's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is only part of the picture 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 highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
SFM currently has a forward P/E ratio of 12.88, while SOVO has a forward P/E of 25.82. We also note that SFM has a PEG ratio of 1.75. 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. SOVO currently has a PEG ratio of 3.08.
Another notable valuation metric for SFM is its P/B ratio of 3.11. 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, SOVO has a P/B of 3.14.
These metrics, and several others, help SFM earn a Value grade of B, while SOVO has been given a Value grade of C.
SFM has seen stronger estimate revision activity and sports more attractive valuation metrics than SOVO, so it seems like value investors will conclude that SFM is the superior option right now.