Investors interested in stocks from the Financial - Consumer Loans sector have probably already heard of Ally Financial (ALLY - Free Report) and Credit Acceptance (CACC - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Ally Financial and Credit Acceptance are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that ALLY is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.
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.
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.
ALLY currently has a forward P/E ratio of 8.24, while CACC has a forward P/E of 13.92. We also note that ALLY has a PEG ratio of 0.59. 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. CACC currently has a PEG ratio of 0.87.
Another notable valuation metric for ALLY is its P/B ratio of 0.87. 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, CACC has a P/B of 4.43.
These metrics, and several others, help ALLY earn a Value grade of A, while CACC has been given a Value grade of C.
ALLY is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that ALLY is likely the superior value option right now.