Investors looking for stocks in the Mining - Gold sector might want to consider either Harmony Gold (HMY - Free Report) or Royal Gold (RGLD - Free Report) . 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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Currently, Harmony Gold has a Zacks Rank of #2 (Buy), while Royal Gold has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that HMY likely has seen a stronger improvement to its earnings outlook than RGLD has recently. But this is just one piece of the puzzle for value investors.
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.
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.
HMY currently has a forward P/E ratio of 20, while RGLD has a forward P/E of 48.76. We also note that HMY has a PEG ratio of 0.44. 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. RGLD currently has a PEG ratio of 4.88.
Another notable valuation metric for HMY is its P/B ratio of 1.20. 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, RGLD has a P/B of 3.39.
These metrics, and several others, help HMY earn a Value grade of A, while RGLD has been given a Value grade of D.
HMY has seen stronger estimate revision activity and sports more attractive valuation metrics than RGLD, so it seems like value investors will conclude that HMY is the superior option right now.