Investors interested in Medical - Outpatient and Home Healthcare stocks are likely familiar with 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.
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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Right now, Encompass Health is sporting a Zacks Rank of #2 (Buy), while U.S. Physical Therapy has a Zacks Rank of #4 (Sell). This means that EHC'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 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.
EHC currently has a forward P/E ratio of 17.94, while USPH has a forward P/E of 39.76. We also note that EHC has a PEG ratio of 2.03. 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 3.25.
Another notable valuation metric for EHC is its P/B ratio of 4.09. 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, USPH has a P/B of 6.13.
These are just a few of the metrics contributing to EHC's Value grade of A and USPH's Value grade of C.
EHC sticks out from USPH in both our Zacks Rank and Style Scores models, so value investors will likely feel that EHC is the better option right now.