Investors interested in Automotive - Original Equipment stocks are likely familiar with Allison Transmission (ALSN - Free Report) and Ferrari (RACE - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? 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.
Currently, Allison Transmission has a Zacks Rank of #2 (Buy), while Ferrari has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that ALSN likely has seen a stronger improvement to its earnings outlook than RACE has recently. But this is just one piece of the puzzle for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its current share price levels.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
ALSN currently has a forward P/E ratio of 8.87, while RACE has a forward P/E of 35.69. We also note that ALSN has a PEG ratio of 0.89. 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. RACE currently has a PEG ratio of 2.17.
Another notable valuation metric for ALSN is its P/B ratio of 7.11. 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, RACE has a P/B of 16.06.
Based on these metrics and many more, ALSN holds a Value grade of A, while RACE has a Value grade of D.
ALSN stands above RACE thanks to its solid earnings outlook, and based on these valuation figures, we also feel that ALSN is the superior value option right now.