Investors interested in stocks from the Medical Services sector have probably already heard of Medpace (MEDP - Free Report) and PRA Health Sciences (PRAH - 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 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.
Both Medpace and PRA Health Sciences have a Zacks Rank of # 2 (Buy) right now. Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. But this is only part of the picture 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.
MEDP currently has a forward P/E ratio of 20.80, while PRAH has a forward P/E of 23.18. We also note that MEDP has a PEG ratio of 1.30. 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. PRAH currently has a PEG ratio of 1.32.
Another notable valuation metric for MEDP is its P/B ratio of 3.31. 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, PRAH has a P/B of 6.45.
These metrics, and several others, help MEDP earn a Value grade of B, while PRAH has been given a Value grade of C.
Both MEDP and PRAH are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that MEDP is the superior value option right now.