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 presents investors with the better value opportunity right now? Let's take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive 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.
Encompass Health and Chemed are both sporting a Zacks Rank of # 2 (Buy) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. But this is only part of the picture for value investors.
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.
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.
EHC currently has a forward P/E ratio of 18.55, while CHE has a forward P/E of 23.45. We also note that EHC has a PEG ratio of 1.69. 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. CHE currently has a PEG ratio of 2.35.
Another notable valuation metric for EHC is its P/B ratio of 4.19. 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, CHE has a P/B of 7.83.
Based on these metrics and many more, EHC holds a Value grade of A, 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.