Investors looking for stocks in the Communication - Components sector might want to consider either Knowles (KN - Free Report) or Harmonic (HLIT - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? 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.
Knowles and Harmonic are both sporting 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 just one piece of the puzzle for value investors.
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.
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.
KN currently has a forward P/E ratio of 15.06, while HLIT has a forward P/E of 44.15. We also note that KN has a PEG ratio of 1.51. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. HLIT currently has a PEG ratio of 5.05.
Another notable valuation metric for KN is its P/B ratio of 1.19. 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, HLIT has a P/B of 2.27.
These metrics, and several others, help KN earn a Value grade of B, while HLIT has been given a Value grade of D.
Both KN and HLIT are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that KN is the superior value option right now.