Investors interested in stocks from the Chemical - Specialty sector have probably already heard of Daqo New Energy (DQ - Free Report) and Quaker Chemical (KWR - Free Report) . But which of these two stocks offers value investors a better bang for their buck right now? We'll need to take a closer look.
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 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.
Daqo New Energy has a Zacks Rank of #1 (Strong Buy), while Quaker Chemical has a Zacks Rank of #4 (Sell) right now. This means that DQ'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 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.
DQ currently has a forward P/E ratio of 7.08, while KWR has a forward P/E of 24.06. We also note that DQ has a PEG ratio of 0.24. 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. KWR currently has a PEG ratio of 1.76.
Another notable valuation metric for DQ is its P/B ratio of 1.13. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, KWR has a P/B of 2.49.
These are just a few of the metrics contributing to DQ's Value grade of A and KWR's Value grade of D.
DQ 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 DQ is likely the superior value option right now.