Investors interested in stocks from the Automotive - Original Equipment sector have probably already heard of Allison Transmission (ALSN - Free Report) and Ferrari (RACE - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Allison Transmission and Ferrari are sporting Zacks Ranks of #1 (Strong Buy) and #2 (Buy), respectively, right now. This means that ALSN'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 also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their 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.
ALSN currently has a forward P/E ratio of 10.32, while RACE has a forward P/E of 39.07. We also note that ALSN has a PEG ratio of 1.03. 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. RACE currently has a PEG ratio of 2.26.
Another notable valuation metric for ALSN is its P/B ratio of 8.02. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, RACE has a P/B of 24.64.
Based on these metrics and many more, ALSN holds a Value grade of B, while RACE has a Value grade of F.
ALSN has seen stronger estimate revision activity and sports more attractive valuation metrics than RACE, so it seems like value investors will conclude that ALSN is the superior option right now.