Investors with an interest in Paper and Related Products stocks have likely encountered both Domtar (UFS - Free Report) and Neenah Paper (NP - 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 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.
Currently, Domtar has a Zacks Rank of #1 (Strong Buy), while Neenah Paper has a Zacks Rank of #3 (Hold). This means that UFS's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one piece of the puzzle 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.
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.
UFS currently has a forward P/E ratio of 13.17, while NP has a forward P/E of 19.46. We also note that UFS has a PEG ratio of 2.63. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. NP currently has a PEG ratio of 3.89.
Another notable valuation metric for UFS is its P/B ratio of 1.20. 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, NP has a P/B of 3.53.
These metrics, and several others, help UFS earn a Value grade of B, while NP has been given a Value grade of C.
UFS stands above NP thanks to its solid earnings outlook, and based on these valuation figures, we also feel that UFS is the superior value option right now.