Investors looking for stocks in the Utility - Gas Distribution sector might want to consider either Southwest Gas (SWX - Free Report) or Northwest Natural Gas (NWN - 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Southwest Gas has a Zacks Rank of #2 (Buy), while Northwest Natural Gas has a Zacks Rank of #3 (Hold) right now. Investors should feel comfortable knowing that SWX likely has seen a stronger improvement to its earnings outlook than NWN has recently. But this is only part of the picture for value investors.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies 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.
SWX currently has a forward P/E ratio of 21.65, while NWN has a forward P/E of 29.75. We also note that SWX has a PEG ratio of 5.41. 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. NWN currently has a PEG ratio of 6.87.
Another notable valuation metric for SWX is its P/B ratio of 2.04. 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, NWN has a P/B of 2.52.
These metrics, and several others, help SWX earn a Value grade of B, while NWN has been given a Value grade of C.
SWX stands above NWN thanks to its solid earnings outlook, and based on these valuation figures, we also feel that SWX is the superior value option right now.