Investors looking for stocks in the Diversified Communication Services sector might want to consider either Telefonica Brasil (VIV) or Swisscom AG (SCMWY). But which of these two stocks presents investors with the better value opportunity right now? 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Currently, Telefonica Brasil has a Zacks Rank of #2 (Buy), while Swisscom AG has a Zacks Rank of #4 (Sell). This means that VIV's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. 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.
VIV currently has a forward P/E ratio of 17.24, while SCMWY has a forward P/E of 26.50. We also note that VIV has a PEG ratio of 0.97. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. SCMWY currently has a PEG ratio of 2.06.
Another notable valuation metric for VIV is its P/B ratio of 2.05. 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, SCMWY has a P/B of 30.16.
These metrics, and several others, help VIV earn a Value grade of B, while SCMWY has been given a Value grade of F.
VIV has seen stronger estimate revision activity and sports more attractive valuation metrics than SCMWY, so it seems like value investors will conclude that VIV is the superior option right now.
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Telefonica Brasil S.A. (VIV): Free Stock Analysis Report
Swisscom AG (SCMWY): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).