Investors interested in stocks from the Banks - Midwest sector have probably already heard of First Business Financial Services (FBIZ - Free Report) and Mercantile Bank (MBWM - 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
First Business Financial Services and Mercantile Bank are sporting Zacks Ranks of #1 (Strong Buy) and #3 (Hold), respectively, right now. This means that FBIZ'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.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
FBIZ currently has a forward P/E ratio of 10.08, while MBWM has a forward P/E of 12.31. We also note that FBIZ has a PEG ratio of 1.26. 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. MBWM currently has a PEG ratio of 1.54.
Another notable valuation metric for FBIZ is its P/B ratio of 1.10. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, MBWM has a P/B of 1.34.
Based on these metrics and many more, FBIZ holds a Value grade of B, while MBWM has a Value grade of C.
FBIZ stands above MBWM thanks to its solid earnings outlook, and based on these valuation figures, we also feel that FBIZ is the superior value option right now.