Investors interested in Banks - Foreign stocks are likely familiar with Sumitomo Mitsui (SMFG - Free Report) and Banco Bilbao (BBVA - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
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.
Sumitomo Mitsui has a Zacks Rank of #2 (Buy), while Banco Bilbao has a Zacks Rank of #4 (Sell) right now. This means that SMFG's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one factor that value investors are interested in.
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.
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.
SMFG currently has a forward P/E ratio of 7.06, while BBVA has a forward P/E of 7.13. We also note that SMFG has a PEG ratio of 2.64. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. BBVA currently has a PEG ratio of 3.06.
Another notable valuation metric for SMFG is its P/B ratio of 0.46. 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, BBVA has a P/B of 0.55.
Based on these metrics and many more, SMFG holds a Value grade of B, while BBVA has a Value grade of F.
SMFG has seen stronger estimate revision activity and sports more attractive valuation metrics than BBVA, so it seems like value investors will conclude that SMFG is the superior option right now.