Investors interested in Beverages - Soft drinks stocks are likely familiar with Fomento Economico (FMX - Free Report) and PepsiCo (PEP - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? 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 Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Right now, Fomento Economico is sporting a Zacks Rank of #2 (Buy), while PepsiCo has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that FMX is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its current share price levels.
The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
FMX currently has a forward P/E ratio of 23.89, while PEP has a forward P/E of 23.96. We also note that FMX has a PEG ratio of 1.51. 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. PEP currently has a PEG ratio of 3.43.
Another notable valuation metric for FMX is its P/B ratio of 1.83. 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, PEP has a P/B of 13.15.
These are just a few of the metrics contributing to FMX's Value grade of B and PEP's Value grade of C.
FMX 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 FMX is likely the superior value option right now.