Investors with an interest in Oil and Gas - Exploration and Production - United States stocks have likely encountered both SRC Energy (SRCI - Free Report) and Concho Resources (CXO - Free Report) . But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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.
SRC Energy has a Zacks Rank of #2 (Buy), while Concho Resources has a Zacks Rank of #3 (Hold) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that SRCI has an improving earnings outlook. 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.
SRCI currently has a forward P/E ratio of 4.87, while CXO has a forward P/E of 25.95. We also note that SRCI has a PEG ratio of 0.44. 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. CXO currently has a PEG ratio of 0.85.
Another notable valuation metric for SRCI is its P/B ratio of 0.70. 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, CXO has a P/B of 1.19.
These are just a few of the metrics contributing to SRCI's Value grade of A and CXO's Value grade of C.
SRCI 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 SRCI is likely the superior value option right now.