Investors interested in stocks from the Oil and Gas - Production and Pipelines sector have probably already heard of Ultrapar Participacoes S.A. (UGP) and MPLX LP (MPLX). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Right now, Ultrapar Participacoes S.A. is sporting a Zacks Rank of #2 (Buy), while MPLX LP has a Zacks Rank of #4 (Sell). This means that UGP's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. However, value investors will care about much more than just this.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their current share price levels.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
UGP currently has a forward P/E ratio of 12.50, while MPLX has a forward P/E of 12.66. We also note that UGP has a PEG ratio of 1.61. 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. MPLX currently has a PEG ratio of 5.13.
Another notable valuation metric for UGP is its P/B ratio of 2.02. 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, MPLX has a P/B of 3.87.
These are just a few of the metrics contributing to UGP's Value grade of A and MPLX's Value grade of C.
UGP stands above MPLX thanks to its solid earnings outlook, and based on these valuation figures, we also feel that UGP is the superior value option right now.
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Ultrapar Participacoes S.A. (UGP): Free Stock Analysis Report
MPLX LP (MPLX): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).