XP vs. FUTU: Which Stock Is the Better Value Option?

Investors with an interest in Financial - Miscellaneous Services stocks have likely encountered both XP Inc.A (XP) and Futu Holdings Limited Sponsored ADR (FUTU). 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.

XP Inc.A has a Zacks Rank of #2 (Buy), while Futu Holdings Limited Sponsored ADR has a Zacks Rank of #5 (Strong Sell) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that XP has an improving earnings outlook. But this is just one factor that value investors are interested in.

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 grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.

XP currently has a forward P/E ratio of 8.07, while FUTU has a forward P/E of 9.63. We also note that XP has a PEG ratio of 0.53. 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. FUTU currently has a PEG ratio of 1.01.

Another notable valuation metric for XP is its P/B ratio of 1.9. 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, FUTU has a P/B of 2.72.

These metrics, and several others, help XP earn a Value grade of A, while FUTU has been given a Value grade of C.

XP has seen stronger estimate revision activity and sports more attractive valuation metrics than FUTU, so it seems like value investors will conclude that XP is the superior option right now.

Zacks' Research Chief Names "Stock Most Likely to Double"

Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.

This top pick is a little-known satellite-based communications firm. Space is projected to become a trillion dollar industry, and this company's customer base is growing fast. Analysts have forecasted a major revenue breakout in 2025. Of course, all our elite picks aren't winners but this one could far surpass earlier Zacks' Stocks Set to Double like Hims & Hers Health, which shot up +209%.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research