Investors looking for stocks in the Oil and Gas - Production and Pipelines sector might want to consider either Ultrapar Participacoes S.A. (UGP) or Williams Companies, Inc. (The) (WMB). But which of these two stocks presents investors with the better value opportunity right now? Let's 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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Ultrapar Participacoes S.A. has a Zacks Rank of #2 (Buy), while Williams Companies, Inc. (The) has a Zacks Rank of #3 (Hold) right now. This means that UGP's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one factor that value investors are interested in.
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.
UGP currently has a forward P/E ratio of 8.74, while WMB has a forward P/E of 28.74. We also note that UGP has a PEG ratio of 0.95. 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. WMB currently has a PEG ratio of 1.71.
Another notable valuation metric for UGP is its P/B ratio of 1.61. 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, WMB has a P/B of 5.66.
Based on these metrics and many more, UGP holds a Value grade of A, while WMB has a Value grade of D.
UGP has seen stronger estimate revision activity and sports more attractive valuation metrics than WMB, so it seems like value investors will conclude that UGP is the superior option right now.
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Ultrapar Participacoes S.A. (UGP): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).