Investors with an interest in Medical - Outpatient and Home Healthcare stocks have likely encountered both Encompass Health (EHC - Free Report) and U.S. Physical Therapy (USPH - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Encompass Health and U.S. Physical Therapy are both sporting a Zacks Rank of # 2 (Buy) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that both of these companies have improving earnings outlooks. But this is just one piece of the puzzle for value investors.
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 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.
EHC currently has a forward P/E ratio of 19.82, while USPH has a forward P/E of 45.30. We also note that EHC has a PEG ratio of 1.81. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. USPH currently has a PEG ratio of 4.03.
Another notable valuation metric for EHC is its P/B ratio of 4.46. 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, USPH has a P/B of 6.85.
Based on these metrics and many more, EHC holds a Value grade of A, while USPH has a Value grade of C.
Both EHC and USPH are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that EHC is the superior value option right now.