Investors interested in stocks from the Electronics - Miscellaneous Products sector have probably already heard of Flex (FLEX) and Rockwell Automation (ROK). 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 is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Right now, Flex is sporting a Zacks Rank of #2 (Buy), while Rockwell Automation has a Zacks Rank of #3 (Hold). This means that FLEX's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. 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 Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
FLEX currently has a forward P/E ratio of 20.09, while ROK has a forward P/E of 28.98. We also note that FLEX has a PEG ratio of 1.43. 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. ROK currently has a PEG ratio of 2.51.
Another notable valuation metric for FLEX is its P/B ratio of 4.65. 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, ROK has a P/B of 10.39.
These are just a few of the metrics contributing to FLEX's Value grade of B and ROK's Value grade of D.
FLEX has seen stronger estimate revision activity and sports more attractive valuation metrics than ROK, so it seems like value investors will conclude that FLEX is the superior option right now.
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Flex Ltd. (FLEX): Free Stock Analysis Report
Rockwell Automation, Inc. (ROK): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).