Investors interested in stocks from the Paper and Related Products sector have probably already heard of Domtar (UFS - Free Report) and Neenah Paper (NP - Free Report) . But which of these two stocks offers value investors a better bang for their buck right now? We'll need to 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Domtar has a Zacks Rank of #2 (Buy), while Neenah Paper has a Zacks Rank of #4 (Sell) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that UFS is likely seeing its earnings outlook improve to a greater extent. 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.
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.
UFS currently has a forward P/E ratio of 9.48, while NP has a forward P/E of 18.18. We also note that UFS has a PEG ratio of 1.90. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. NP currently has a PEG ratio of 3.64.
Another notable valuation metric for UFS is its P/B ratio of 1.05. 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, NP has a P/B of 2.77.
These metrics, and several others, help UFS earn a Value grade of A, while NP has been given a Value grade of C.
UFS sticks out from NP in both our Zacks Rank and Style Scores models, so value investors will likely feel that UFS is the better option right now.