Investors with an interest in Oil and Gas - Exploration and Production - United States stocks have likely encountered both Rice Midstream Partners and SM Energy (SM - 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Rice Midstream Partners and SM Energy are sporting Zacks Ranks of #2 (Buy) and #3 (Hold) respectively, right now. This means that RMP'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.
RMP currently has a forward P/E ratio of 10.35, while SM has a forward P/E of 184.48. We also note that RMP has a PEG ratio of 0.74. 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. SM currently has a PEG ratio of 18.45.
Another notable valuation metric for RMP is its P/B ratio of 0.78. 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, SM has a P/B of 0.90.
These metrics, and several others, help RMP earn a Value grade of B, while SM has been given a Value grade of C.
RMP 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 RMP is likely the superior value option right now.