Investors interested in stocks from the Financial - Consumer Loans sector have probably already heard of Discover (DFS - Free Report) and Credit Acceptance (CACC - 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 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.
Both Discover and Credit Acceptance have 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 are also interested in a number of tried-and-true valuation metrics that help show when 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.
DFS currently has a forward P/E ratio of 7.44, while CACC has a forward P/E of 13.28. We also note that DFS has a PEG ratio of 0.60. 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. CACC currently has a PEG ratio of 0.77.
Another notable valuation metric for DFS is its P/B ratio of 1.87. 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, CACC has a P/B of 3.72.
Based on these metrics and many more, DFS holds a Value grade of A, while CACC has a Value grade of C.
Both DFS and CACC are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that DFS is the superior value option right now.