Investors interested in stocks from the Financial - Consumer Loans sector have probably already heard of Ally Financial (ALLY - Free Report) and Credit Acceptance (CACC - 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.
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, Ally Financial is sporting a Zacks Rank of #1 (Strong Buy), while Credit Acceptance has a Zacks Rank of #2 (Buy). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that ALLY has an improving earnings outlook. But this is only part of the picture for value investors.
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 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.
ALLY currently has a forward P/E ratio of 8.78, while CACC has a forward P/E of 16.44. We also note that ALLY has a PEG ratio of 0.69. 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. CACC currently has a PEG ratio of 0.83.
Another notable valuation metric for ALLY is its P/B ratio of 0.87. 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, CACC has a P/B of 4.84.
Based on these metrics and many more, ALLY holds a Value grade of A, while CACC has a Value grade of D.
ALLY is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that ALLY is likely the superior value option right now.