Investors interested in stocks from the Medical - Instruments sector have probably already heard of Globus Medical (GMED) and Penumbra (PEN). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. 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.
Globus Medical has a Zacks Rank of #2 (Buy), while Penumbra has a Zacks Rank of #3 (Hold) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that GMED has an improving earnings outlook. However, value investors will care about much more than just this.
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.
GMED currently has a forward P/E ratio of 16.88, while PEN has a forward P/E of 63.12. We also note that GMED has a PEG ratio of 1.65. 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. PEN currently has a PEG ratio of 1.97.
Another notable valuation metric for GMED is its P/B ratio of 2.29. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, PEN has a P/B of 8.56.
Based on these metrics and many more, GMED holds a Value grade of B, while PEN has a Value grade of D.
GMED 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 GMED is likely the superior value option right now.
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Globus Medical, Inc. (GMED): Free Stock Analysis Report
Penumbra, Inc. (PEN): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).