Investors interested in Financial - Miscellaneous Services stocks are likely familiar with XP Inc.A (XP) and Grupo Financiero Banorte SAB de CV (GBOOY). 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
XP Inc.A has a Zacks Rank of #2 (Buy), while Grupo Financiero Banorte SAB de CV has a Zacks Rank of #3 (Hold) right now. This means that XP's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one factor that value investors are interested in.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its current share price levels.
The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
XP currently has a forward P/E ratio of 8.41, while GBOOY has a forward P/E of 8.66. We also note that XP has a PEG ratio of 0.55. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. GBOOY currently has a PEG ratio of 1.05.
Another notable valuation metric for XP is its P/B ratio of 2.2. 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, GBOOY has a P/B of 2.25.
Based on these metrics and many more, XP holds a Value grade of A, while GBOOY has a Value grade of C.
XP sticks out from GBOOY in both our Zacks Rank and Style Scores models, so value investors will likely feel that XP is the better option right now.
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This article originally published on Zacks Investment Research (zacks.com).