Investors interested in stocks from the Utility - Electric Power sector have probably already heard of Korea Electric Power (KEP - Free Report) and Hawaiian Electric (HE - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Korea Electric Power has a Zacks Rank of #2 (Buy), while Hawaiian Electric has a Zacks Rank of #4 (Sell) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that KEP is likely seeing its earnings outlook improve to a greater extent. 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.
KEP currently has a forward P/E ratio of 19.13, while HE has a forward P/E of 22.18. We also note that KEP has a PEG ratio of 3.83. 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. HE currently has a PEG ratio of 13.28.
Another notable valuation metric for KEP is its P/B ratio of 0.21. 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, HE has a P/B of 1.79.
Based on these metrics and many more, KEP holds a Value grade of B, while HE has a Value grade of F.
KEP has seen stronger estimate revision activity and sports more attractive valuation metrics than HE, so it seems like value investors will conclude that KEP is the superior option right now.