Investors interested in stocks from the Financial - Consumer Loans sector have probably already heard of Encore Capital Group (ECPG - Free Report) and Credit Acceptance (CACC - Free Report) . 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Currently, Encore Capital Group has a Zacks Rank of #2 (Buy), while Credit Acceptance has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that ECPG is likely seeing its earnings outlook improve to a greater extent. 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.
ECPG currently has a forward P/E ratio of 6.51, while CACC has a forward P/E of 13.40. We also note that ECPG has a PEG ratio of 0.50. 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. CACC currently has a PEG ratio of 0.84.
Another notable valuation metric for ECPG is its P/B ratio of 1.24. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, CACC has a P/B of 4.24.
Based on these metrics and many more, ECPG holds a Value grade of B, while CACC has a Value grade of C.
ECPG sticks out from CACC in both our Zacks Rank and Style Scores models, so value investors will likely feel that ECPG is the better option right now.