Investors interested in stocks from the Financial - Miscellaneous Services sector have probably already heard of American Express (AXP - Free Report) and Moody's (MCO - 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.
American Express has a Zacks Rank of #2 (Buy), while Moody's has a Zacks Rank of #4 (Sell) right now. Investors should feel comfortable knowing that AXP likely has seen a stronger improvement to its earnings outlook than MCO has recently. 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.
AXP currently has a forward P/E ratio of 14.43, while MCO has a forward P/E of 19.96. We also note that AXP has a PEG ratio of 1.44. 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. MCO currently has a PEG ratio of 1.86.
Another notable valuation metric for AXP is its P/B ratio of 4.24. 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, MCO has a P/B of 47.66.
These metrics, and several others, help AXP earn a Value grade of B, while MCO has been given a Value grade of F.
AXP has seen stronger estimate revision activity and sports more attractive valuation metrics than MCO, so it seems like value investors will conclude that AXP is the superior option right now.