Investors interested in stocks from the Banks - Southeast sector have probably already heard of Summit Financial (SMMF - Free Report) and City Holding (CHCO - 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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, both Summit Financial and City Holding are holding a Zacks Rank of # 1 (Strong Buy). This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings outlook. However, value investors will care about much more than just this.
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.
SMMF currently has a forward P/E ratio of 10.98, while CHCO has a forward P/E of 13.89. We also note that SMMF has a PEG ratio of 1.37. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. CHCO currently has a PEG ratio of 1.74.
Another notable valuation metric for SMMF is its P/B ratio of 1.36. 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, CHCO has a P/B of 1.85.
These are just a few of the metrics contributing to SMMF's Value grade of B and CHCO's Value grade of C.
Both SMMF and CHCO are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that SMMF is the superior value option right now.