Investors with an interest in Medical - Biomedical and Genetics stocks have likely encountered both Royalty Pharma (RPRX) and Amgen (AMGN). But which of these two stocks presents investors with the better value opportunity right now? 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Royalty Pharma has a Zacks Rank of #2 (Buy), while Amgen has a Zacks Rank of #3 (Hold) right now. Investors should feel comfortable knowing that RPRX likely has seen a stronger improvement to its earnings outlook than AMGN has recently. But this is only part of the picture for value investors.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their 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.
RPRX currently has a forward P/E ratio of 9.92, while AMGN has a forward P/E of 14.84. We also note that RPRX has a PEG ratio of 3.22. 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. AMGN currently has a PEG ratio of 3.35.
Another notable valuation metric for RPRX is its P/B ratio of 3. 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, AMGN has a P/B of 19.35.
These metrics, and several others, help RPRX earn a Value grade of B, while AMGN has been given a Value grade of C.
RPRX 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 RPRX is likely the superior value option right now.
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Royalty Pharma PLC (RPRX): Free Stock Analysis Report
Amgen Inc. (AMGN): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).