Investors interested in stocks from the Manufacturing - General Industrial sector have probably already heard of IHI CORP and Flowserve (FLS - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
IHI CORP and Flowserve 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 just one factor that value investors are interested in.
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.
IHICY currently has a forward P/E ratio of 0.59, while FLS has a forward P/E of 21.54. We also note that IHICY has a PEG ratio of 0.05. 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. FLS currently has a PEG ratio of 1.07.
Another notable valuation metric for IHICY is its P/B ratio of 1.37. 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, FLS has a P/B of 3.79.
These metrics, and several others, help IHICY earn a Value grade of A, while FLS has been given a Value grade of C.
Both IHICY and FLS are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that IHICY is the superior value option right now.