Investors interested in Manufacturing - Farm Equipment stocks are likely familiar with Alamo Group (ALG) and Deere (DE). 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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Alamo Group has a Zacks Rank of #2 (Buy), while Deere has a Zacks Rank of #3 (Hold) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that ALG is likely seeing its earnings outlook improve to a greater extent. But this is just one piece of the puzzle 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.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
ALG currently has a forward P/E ratio of 15.41, while DE has a forward P/E of 31.92. We also note that ALG has a PEG ratio of 0.96. 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. DE currently has a PEG ratio of 2.01.
Another notable valuation metric for ALG is its P/B ratio of 1.7. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, DE has a P/B of 5.9.
These metrics, and several others, help ALG earn a Value grade of B, while DE has been given a Value grade of D.
ALG stands above DE thanks to its solid earnings outlook, and based on these valuation figures, we also feel that ALG is the superior value option right now.
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Alamo Group, Inc. (ALG): Free Stock Analysis Report
Deere & Company (DE): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).