Investors with an interest in Medical - Dental Supplies stocks have likely encountered both McKesson (MCK) and West Pharmaceutical Services (WST). 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 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.
Currently, both McKesson and West Pharmaceutical Services are holding a Zacks Rank of # 2 (Buy). This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings 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.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
MCK currently has a forward P/E ratio of 9.47, while WST has a forward P/E of 42.83. We also note that MCK has a PEG ratio of 1.34. 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. WST currently has a PEG ratio of 3.06.
Another notable valuation metric for MCK is its P/B ratio of 3.88. 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, WST has a P/B of 7.07.
Based on these metrics and many more, MCK holds a Value grade of A, while WST has a Value grade of D.
Both MCK and WST are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that MCK is the superior value option right now.