Investors looking for stocks in the Chemical - Specialty sector might want to consider either Axalta Coating Systems (AXTA) or RPM International (RPM). 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, Axalta Coating Systems has a Zacks Rank of #2 (Buy), while RPM International has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that AXTA likely has seen a stronger improvement to its earnings outlook than RPM has recently. 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.
AXTA currently has a forward P/E ratio of 13.56, while RPM has a forward P/E of 18.52. We also note that AXTA has a PEG ratio of 1.83. 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. RPM currently has a PEG ratio of 2.58.
Another notable valuation metric for AXTA is its P/B ratio of 3.04. 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, RPM has a P/B of 4.47.
These metrics, and several others, help AXTA earn a Value grade of B, while RPM has been given a Value grade of C.
AXTA 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 AXTA is likely the superior value option right now.
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Axalta Coating Systems Ltd. (AXTA): Free Stock Analysis Report
RPM International Inc. (RPM): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).