Investors looking for stocks in the Financial - Investment Bank sector might want to consider either Goldman Sachs (GS) or MarketAxess (MKTX). But which of these two companies is the best option for those looking for undervalued stocks? 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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, Goldman Sachs has a Zacks Rank of #2 (Buy), while MarketAxess has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that GS likely has seen a stronger improvement to its earnings outlook than MKTX has recently. But this is only part of the picture 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.
GS currently has a forward P/E ratio of 13.88, while MKTX has a forward P/E of 22.29. We also note that GS has a PEG ratio of 0.96. 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. MKTX currently has a PEG ratio of 3.01.
Another notable valuation metric for GS is its P/B ratio of 2.15. 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, MKTX has a P/B of 5.89.
These metrics, and several others, help GS earn a Value grade of B, while MKTX has been given a Value grade of D.
GS sticks out from MKTX in both our Zacks Rank and Style Scores models, so value investors will likely feel that GS is the better option right now.
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The Goldman Sachs Group, Inc. (GS): Free Stock Analysis Report
MarketAxess Holdings Inc. (MKTX): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).