Investors interested in Automotive - Retail and Wholesale - Parts stocks are likely familiar with CarMax (KMX) and Genuine Parts (GPC). But which of these two companies is the best option for those looking for undervalued stocks? 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Currently, CarMax has a Zacks Rank of #1 (Strong Buy), while Genuine Parts has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that KMX likely has seen a stronger improvement to its earnings outlook than GPC has recently. 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.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
KMX currently has a forward P/E ratio of 16.97, while GPC has a forward P/E of 17.28. We also note that KMX has a PEG ratio of 1.48. 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. GPC currently has a PEG ratio of 2.47.
Another notable valuation metric for KMX is its P/B ratio of 1.18. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, GPC has a P/B of 4.05.
These are just a few of the metrics contributing to KMX's Value grade of B and GPC's Value grade of C.
KMX sticks out from GPC in both our Zacks Rank and Style Scores models, so value investors will likely feel that KMX is the better option right now.
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CarMax, Inc. (KMX): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).