Investors interested in stocks from the Financial - Consumer Loans sector have probably already heard of Encore Capital Group (ECPG - Free Report) and Sallie Mae (SLM - 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.
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.
Encore Capital Group and Sallie Mae are sporting Zacks Ranks of #2 (Buy) and #4 (Sell), respectively, right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that ECPG has an improving earnings outlook. But this is just one piece of the puzzle for value investors.
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.
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.
ECPG currently has a forward P/E ratio of 6.03, while SLM has a forward P/E of 7.65. We also note that ECPG has a PEG ratio of 0.40. 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. SLM currently has a PEG ratio of 0.57.
Another notable valuation metric for ECPG is its P/B ratio of 1.17. 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, SLM has a P/B of 1.48.
Based on these metrics and many more, ECPG holds a Value grade of A, while SLM has a Value grade of C.
ECPG has seen stronger estimate revision activity and sports more attractive valuation metrics than SLM, so it seems like value investors will conclude that ECPG is the superior option right now.