Investors interested in stocks from the Broadcast Radio and Television sector have probably already heard of Discovery Communications (DISCA - Free Report) and Netflix (NFLX - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Discovery Communications has a Zacks Rank of #2 (Buy), while Netflix has a Zacks Rank of #3 (Hold) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that DISCA has an improving earnings outlook. 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.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
DISCA currently has a forward P/E ratio of 14.46, while NFLX has a forward P/E of 107.52. We also note that DISCA has a PEG ratio of 0.54. 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. NFLX currently has a PEG ratio of 3.58.
Another notable valuation metric for DISCA is its P/B ratio of 1.67. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, NFLX has a P/B of 24.60.
These metrics, and several others, help DISCA earn a Value grade of A, while NFLX has been given a Value grade of F.
DISCA has seen stronger estimate revision activity and sports more attractive valuation metrics than NFLX, so it seems like value investors will conclude that DISCA is the superior option right now.