Investors with an interest in Automotive - Original Equipment stocks have likely encountered both Allison Transmission (ALSN - Free Report) and Ferrari (RACE - 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.
Currently, Allison Transmission has a Zacks Rank of #1 (Strong Buy), while Ferrari has a Zacks Rank of #4 (Sell). Investors should feel comfortable knowing that ALSN likely has seen a stronger improvement to its earnings outlook than RACE has recently. But this is only part of the picture 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.
The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
ALSN currently has a forward P/E ratio of 9.76, while RACE has a forward P/E of 30.33. We also note that ALSN has a PEG ratio of 0.98. 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. RACE currently has a PEG ratio of 1.87.
Another notable valuation metric for ALSN is its P/B ratio of 8.54. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, RACE has a P/B of 14.31.
These are just a few of the metrics contributing to ALSN's Value grade of B and RACE's Value grade of F.
ALSN is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that ALSN is likely the superior value option right now.