Investors with an interest in Medical - Outpatient and Home Healthcare stocks have likely encountered both Encompass Health (EHC - Free Report) and U.S. Physical Therapy (USPH - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. 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, Encompass Health is sporting a Zacks Rank of #2 (Buy), while U.S. Physical Therapy has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that EHC likely has seen a stronger improvement to its earnings outlook than USPH has recently. But this is just one factor that value investors are interested in.
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.
EHC currently has a forward P/E ratio of 20.88, while USPH has a forward P/E of 42.38. We also note that EHC has a PEG ratio of 1.61. 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. USPH currently has a PEG ratio of 3.77.
Another notable valuation metric for EHC is its P/B ratio of 4.83. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, USPH has a P/B of 6.23.
These metrics, and several others, help EHC earn a Value grade of A, while USPH has been given a Value grade of D.
EHC has seen stronger estimate revision activity and sports more attractive valuation metrics than USPH, so it seems like value investors will conclude that EHC is the superior option right now.