MH vs. UTI: Which Stock Should Value Investors Buy Now?

Investors interested in stocks from the Schools sector have probably already heard of McGraw Hill, Inc. (MH) and Universal Technical Institute (UTI). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

McGraw Hill, Inc. has a Zacks Rank of #2 (Buy), while Universal Technical Institute has a Zacks Rank of #5 (Strong Sell) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that MH has an improving earnings outlook. However, value investors will care about much more than just this.

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.

MH currently has a forward P/E ratio of 10.12, while UTI has a forward P/E of 33.38. We also note that MH has a PEG ratio of 1.56. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. UTI currently has a PEG ratio of 2.23.

Another notable valuation metric for MH is its P/B ratio of 3.96. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, UTI has a P/B of 4.42.

These are just a few of the metrics contributing to MH's Value grade of B and UTI's Value grade of C.

MH has seen stronger estimate revision activity and sports more attractive valuation metrics than UTI, so it seems like value investors will conclude that MH is the superior option right now.

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This article originally published on Zacks Investment Research (zacks.com).

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