Investors interested in Manufacturing - Tools & Related Products stocks are likely familiar with Kennametal (KMT) and Sandvik AB (SDVKY). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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, Kennametal is sporting a Zacks Rank of #1 (Strong Buy), while Sandvik AB has a Zacks Rank of #2 (Buy). Investors should feel comfortable knowing that KMT likely has seen a stronger improvement to its earnings outlook than SDVKY 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 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.
KMT currently has a forward P/E ratio of 17.17, while SDVKY has a forward P/E of 23.23. We also note that KMT has a PEG ratio of 0.65. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. SDVKY currently has a PEG ratio of 1.40.
Another notable valuation metric for KMT 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, SDVKY has a P/B of 5.38.
Based on these metrics and many more, KMT holds a Value grade of B, while SDVKY has a Value grade of C.
KMT 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 KMT is likely the superior value option right now.
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Kennametal Inc. (KMT): Free Stock Analysis Report
Sandvik AB (SDVKY): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).