Investors interested in stocks from the Medical - Outpatient and Home Healthcare sector have probably already heard of DaVita HealthCare (DVA - Free Report) and Chemed (CHE - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive 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.
Right now, DaVita HealthCare is sporting a Zacks Rank of #2 (Buy), while Chemed has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that DVA is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.
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 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.
DVA currently has a forward P/E ratio of 17.97, while CHE has a forward P/E of 28. We also note that DVA has a PEG ratio of 0.92. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. CHE currently has a PEG ratio of 2.80.
Another notable valuation metric for DVA is its P/B ratio of 2.80. 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, CHE has a P/B of 9.17.
These are just a few of the metrics contributing to DVA's Value grade of A and CHE's Value grade of C.
DVA has seen stronger estimate revision activity and sports more attractive valuation metrics than CHE, so it seems like value investors will conclude that DVA is the superior option right now.