Investors looking for stocks in the Oil and Gas - Exploration and Production - United States sector might want to consider either QEP Resources (QEP - Free Report) or SM Energy (SM - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Right now, QEP Resources is sporting a Zacks Rank of #2 (Buy), while SM Energy has a Zacks Rank of #5 (Strong Sell). Investors should feel comfortable knowing that QEP likely has seen a stronger improvement to its earnings outlook than SM has recently. But this is just one factor that value investors are interested in.
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.
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.
QEP currently has a forward P/E ratio of 24.25, while SM has a forward P/E of 26.68. We also note that QEP has a PEG ratio of 2.02. 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. SM currently has a PEG ratio of 2.67.
Another notable valuation metric for QEP is its P/B ratio of 0.63. 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, SM has a P/B of 0.91.
These metrics, and several others, help QEP earn a Value grade of A, while SM has been given a Value grade of C.
QEP stands above SM thanks to its solid earnings outlook, and based on these valuation figures, we also feel that QEP is the superior value option right now.