Investors interested in Medical - Outpatient and Home Healthcare stocks are likely familiar with Encompass Health (EHC - Free Report) and Chemed (CHE - Free Report) . But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Both Encompass Health and Chemed have a Zacks Rank of # 2 (Buy) right now. This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings outlook. However, value investors will care about much more than just this.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks 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.
EHC currently has a forward P/E ratio of 20.83, while CHE has a forward P/E of 26.73. We also note that EHC has a PEG ratio of 1.90. 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. CHE currently has a PEG ratio of 2.67.
Another notable valuation metric for EHC is its P/B ratio of 4.70. 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, CHE has a P/B of 8.93.
Based on these metrics and many more, EHC holds a Value grade of B, while CHE has a Value grade of C.
Both EHC and CHE are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that EHC is the superior value option right now.