Investors interested in REIT and Equity Trust - Other stocks are likely familiar with CCA (CXW - Free Report) and Digital Realty Trust (DLR - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Right now, CCA is sporting a Zacks Rank of #2 (Buy), while Digital Realty Trust has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that CXW has an improving earnings outlook. 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.
CXW currently has a forward P/E ratio of 11.30, while DLR has a forward P/E of 18.43. We also note that CXW has a PEG ratio of 1.88. 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. DLR currently has a PEG ratio of 2.68.
Another notable valuation metric for CXW is its P/B ratio of 2.11. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, DLR has a P/B of 2.62.
These metrics, and several others, help CXW earn a Value grade of B, while DLR has been given a Value grade of F.
CXW has seen stronger estimate revision activity and sports more attractive valuation metrics than DLR, so it seems like value investors will conclude that CXW is the superior option right now.