Investors looking for stocks in the Business - Services sector might want to consider either Bright Horizons Family Solutions (BFAM) or UL Solutions Inc. (ULS). But which of these two stocks presents investors with the better value opportunity right now? 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.
Bright Horizons Family Solutions and UL Solutions Inc. are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that BFAM is likely seeing its earnings outlook improve to a greater extent. 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 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.
BFAM currently has a forward P/E ratio of 14.03, while ULS has a forward P/E of 33.47. We also note that BFAM has a PEG ratio of 1.01. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. ULS currently has a PEG ratio of 2.89.
Another notable valuation metric for BFAM is its P/B ratio of 3.69. 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, ULS has a P/B of 9.59.
These metrics, and several others, help BFAM earn a Value grade of A, while ULS has been given a Value grade of D.
BFAM stands above ULS thanks to its solid earnings outlook, and based on these valuation figures, we also feel that BFAM is the superior value option right now.
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Bright Horizons Family Solutions Inc. (BFAM): Free Stock Analysis Report
UL Solutions Inc. (ULS): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).