Investors looking for stocks in the Medical - Generic Drugs sector might want to consider either Mallinckrodt (MNK - Free Report) or Amphastar Pharmaceuticals (AMPH - 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 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.
Right now, Mallinckrodt is sporting a Zacks Rank of #1 (Strong Buy), while Amphastar Pharmaceuticals has a Zacks Rank of #3 (Hold). This means that MNK's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is only part of the picture for value investors.
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.
MNK currently has a forward P/E ratio of 2.24, while AMPH has a forward P/E of 60.94. We also note that MNK has a PEG ratio of 0.19. 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 2.44.
Another notable valuation metric for MNK is its P/B ratio of 0.53. 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 2.70.
These are just a few of the metrics contributing to MNK's Value grade of A and AMPH's Value grade of D.
MNK sticks out from AMPH in both our Zacks Rank and Style Scores models, so value investors will likely feel that MNK is the better option right now.