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GEO or RTO: Which Is the Better Value Stock Right Now?

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Investors interested in stocks from the Business - Services sector have probably already heard of Geo Group (GEO - Free Report) and Rentokil Initial PLC (RTO - Free Report) . But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.

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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Geo Group has a Zacks Rank of #1 (Strong Buy), while Rentokil Initial PLC has a Zacks Rank of #4 (Sell) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that GEO 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.

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.

GEO currently has a forward P/E ratio of 14.99, while RTO has a forward P/E of 18.65. We also note that GEO has a PEG ratio of 1.50. 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. RTO currently has a PEG ratio of 2.55.

Another notable valuation metric for GEO is its P/B ratio of 1.48. 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, RTO has a P/B of 2.82.

These are just a few of the metrics contributing to GEO's Value grade of A and RTO's Value grade of C.

GEO has seen stronger estimate revision activity and sports more attractive valuation metrics than RTO, so it seems like value investors will conclude that GEO is the superior option right now.


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