Investors looking for stocks in the Medical - Instruments sector might want to consider either Globus Medical (GMED) or Penumbra (PEN). But which of these two stocks presents investors with the better value opportunity right now? 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Globus Medical and Penumbra are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that GMED is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.
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.
GMED currently has a forward P/E ratio of 16.72, while PEN has a forward P/E of 62.44. We also note that GMED has a PEG ratio of 1.63. 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. PEN currently has a PEG ratio of 1.94.
Another notable valuation metric for GMED is its P/B ratio of 2.27. 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, PEN has a P/B of 8.47.
These are just a few of the metrics contributing to GMED's Value grade of B and PEN's Value grade of D.
GMED is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that GMED is likely the superior value option right now.
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Globus Medical, Inc. (GMED): Free Stock Analysis Report
Penumbra, Inc. (PEN): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).