Investors interested in stocks from the Utility - Water Supply sector have probably already heard of Veolia Environnement SA (VEOEY) and Global Water Resources, Inc. (GWRS). But which of these two stocks presents investors with the better value opportunity right now? Let's 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Veolia Environnement SA has a Zacks Rank of #2 (Buy), while Global Water Resources, Inc. has a Zacks Rank of #3 (Hold) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that VEOEY 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.
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.
VEOEY currently has a forward P/E ratio of 19.28, while GWRS has a forward P/E of 85.75. We also note that VEOEY has a PEG ratio of 1.99. 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. GWRS currently has a PEG ratio of 5.72.
Another notable valuation metric for VEOEY is its P/B ratio of 2.22. 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, GWRS has a P/B of 11.21.
These are just a few of the metrics contributing to VEOEY's Value grade of A and GWRS's Value grade of D.
VEOEY sticks out from GWRS in both our Zacks Rank and Style Scores models, so value investors will likely feel that VEOEY is the better option right now.