Investors interested in stocks from the Schools sector have probably already heard of K12 (LRN - Free Report) and Strayer Education (STRA - 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.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great 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.
Both K12 and Strayer Education have a Zacks Rank of # 2 (Buy) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that both of these companies have improving earnings outlooks. But this is just one factor that value investors are interested in.
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.
LRN currently has a forward P/E ratio of 25.89, while STRA has a forward P/E of 28.56. We also note that LRN has a PEG ratio of 1.73. 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. STRA currently has a PEG ratio of 2.86.
Another notable valuation metric for LRN is its P/B ratio of 1.16. 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, STRA has a P/B of 6.03.
Based on these metrics and many more, LRN holds a Value grade of A, while STRA has a Value grade of C.
Both LRN and STRA are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that LRN is the superior value option right now.