Investors looking for stocks in the Paper and Related Products sector might want to consider either International Paper (IP - Free Report) or Neenah Paper (NP - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's 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 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.
International Paper has a Zacks Rank of #2 (Buy), while Neenah Paper has a Zacks Rank of #3 (Hold) right now. This means that IP's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. However, value investors will care about much more than just this.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their 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.
IP currently has a forward P/E ratio of 10.17, while NP has a forward P/E of 20.14. We also note that IP has a PEG ratio of 1.07. 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. NP currently has a PEG ratio of 4.03.
Another notable valuation metric for IP is its P/B ratio of 3.17. 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, NP has a P/B of 3.82.
These are just a few of the metrics contributing to IP's Value grade of A and NP's Value grade of D.
IP stands above NP thanks to its solid earnings outlook, and based on these valuation figures, we also feel that IP is the superior value option right now.