Investors interested in stocks from the Medical - Generic Drugs sector have probably already heard of Amphastar Pharmaceuticals (AMPH) and Doctor Reddy's (RDY). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. 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.
Currently, Amphastar Pharmaceuticals has a Zacks Rank of #2 (Buy), while Doctor Reddy's has a Zacks Rank of #4 (Sell). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that AMPH has an improving earnings 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 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.
AMPH currently has a forward P/E ratio of 6.61, while RDY has a forward P/E of 24.19. We also note that AMPH has a PEG ratio of 1.56. 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. RDY currently has a PEG ratio of 21.79.
Another notable valuation metric for AMPH is its P/B ratio of 1.27. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, RDY has a P/B of 2.8.
These metrics, and several others, help AMPH earn a Value grade of A, while RDY has been given a Value grade of C.
AMPH sticks out from RDY in both our Zacks Rank and Style Scores models, so value investors will likely feel that AMPH is the better option right now.
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Amphastar Pharmaceuticals, Inc. (AMPH): Free Stock Analysis Report
Dr. Reddy's Laboratories Ltd (RDY): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).