Investors interested in Medical - Generic Drugs stocks are likely familiar with Mallinckrodt and Amphastar Pharmaceuticals (AMPH). But which of these two stocks presents investors with the better value opportunity right now? 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.
Right now, Mallinckrodt is sporting a Zacks Rank of #1 (Strong Buy), while Amphastar Pharmaceuticals has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that MNK likely has seen a stronger improvement to its earnings outlook than AMPH has recently. But this is just one piece of the puzzle 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 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.
MNK currently has a forward P/E ratio of 2.69, while AMPH has a forward P/E of 57.60. We also note that MNK has a PEG ratio of 0.22. 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. AMPH currently has a PEG ratio of 2.30.
Another notable valuation metric for MNK is its P/B ratio of 0.64. 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, AMPH has a P/B of 2.55.
Based on these metrics and many more, MNK holds a Value grade of A, while AMPH has a Value grade of C.
MNK has seen stronger estimate revision activity and sports more attractive valuation metrics than AMPH, so it seems like value investors will conclude that MNK is the superior option right now.