Investors interested in stocks from the Medical - Outpatient and Home Healthcare sector have probably already heard of Encompass Health (EHC - Free Report) and U.S. Physical Therapy (USPH - 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.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive 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.
Encompass Health and U.S. Physical Therapy are both sporting a Zacks Rank of # 2 (Buy) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. But this is just one piece of the puzzle for value investors.
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.
EHC currently has a forward P/E ratio of 16.37, while USPH has a forward P/E of 41.01. We also note that EHC has a PEG ratio of 2.09. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. USPH currently has a PEG ratio of 3.65.
Another notable valuation metric for EHC is its P/B ratio of 3.80. 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, USPH has a P/B of 6.89.
These are just a few of the metrics contributing to EHC's Value grade of A and USPH's Value grade of C.
Both EHC and USPH are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that EHC is the superior value option right now.