Investors with an interest in Electronics - Miscellaneous Components stocks have likely encountered both Fabrinet (FN) and Universal Display Corp. (OLED). 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.
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.
Fabrinet and Universal Display Corp. are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. Investors should feel comfortable knowing that FN likely has seen a stronger improvement to its earnings outlook than OLED has recently. But this is only part of the picture 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.
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.
FN currently has a forward P/E ratio of 16.93, while OLED has a forward P/E of 44.17. We also note that FN has a PEG ratio of 1.30. 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. OLED currently has a PEG ratio of 1.47.
Another notable valuation metric for FN is its P/B ratio of 2.57. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, OLED has a P/B of 10.61.
These metrics, and several others, help FN earn a Value grade of A, while OLED has been given a Value grade of D.
FN 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 FN is likely the superior value option right now.