Investors with an interest in Medical - Generic Drugs stocks have likely encountered both Mallinckrodt (MNK - Free Report) and Amphastar Pharmaceuticals (AMPH - 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Right now, Mallinckrodt is sporting a Zacks Rank of #2 (Buy), while Amphastar Pharmaceuticals has a Zacks Rank of #4 (Sell). This means that MNK's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. 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.
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.
MNK currently has a forward P/E ratio of 4.69, while AMPH has a forward P/E of 43.22. We also note that MNK has a PEG ratio of 0.49. 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. AMPH currently has a PEG ratio of 1.92.
Another notable valuation metric for MNK is its P/B ratio of 0.39. 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, AMPH has a P/B of 2.50.
These are just a few of the metrics contributing to MNK's Value grade of A and AMPH's Value grade of C.
MNK has seen stronger estimate revision activity and sports more attractive valuation metrics than AMPH, so it seems like value investors will conclude that MNK is the superior option right now.