Investors looking for stocks in the Automotive - Original Equipment sector might want to consider either China Yuchai (CYD) or Modine (MOD). But which of these two companies is the best option for those looking for undervalued stocks? 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.
Right now, China Yuchai is sporting a Zacks Rank of #1 (Strong Buy), while Modine has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that CYD has an improving earnings outlook. However, value investors will care about much more than just this.
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.
CYD currently has a forward P/E ratio of 15.81, while MOD has a forward P/E of 38.47. We also note that CYD has a PEG ratio of 0.45. 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. MOD currently has a PEG ratio of 0.96.
Another notable valuation metric for CYD is its P/B ratio of 0.98. 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, MOD has a P/B of 13.04.
Based on these metrics and many more, CYD holds a Value grade of A, while MOD has a Value grade of D.
CYD has seen stronger estimate revision activity and sports more attractive valuation metrics than MOD, so it seems like value investors will conclude that CYD is the superior option right now.
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China Yuchai International Limited (CYD): Free Stock Analysis Report
Modine Manufacturing Company (MOD): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).