Investors interested in stocks from the Medical - Generic Drugs sector have probably already heard of Allergan (AGN - Free Report) and Amphastar Pharmaceuticals (AMPH - Free Report) . But which of these two stocks offers value investors a better bang for their buck right now? We'll need to 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 is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Right now, Allergan is sporting a Zacks Rank of #2 (Buy), while Amphastar Pharmaceuticals has a Zacks Rank of #5 (Strong Sell). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that AGN is likely seeing its earnings outlook improve to a greater extent. But this is just one piece of the puzzle 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.
The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
AGN currently has a forward P/E ratio of 10.38, while AMPH has a forward P/E of 51.29. We also note that AGN has a PEG ratio of 1.19. 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. AMPH currently has a PEG ratio of 2.28.
Another notable valuation metric for AGN is its P/B ratio of 0.78. 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, AMPH has a P/B of 2.17.
These metrics, and several others, help AGN earn a Value grade of B, while AMPH has been given a Value grade of C.
AGN has seen stronger estimate revision activity and sports more attractive valuation metrics than AMPH, so it seems like value investors will conclude that AGN is the superior option right now.