THRM vs. RACE: Which Stock Should Value Investors Buy Now?

Investors interested in Automotive - Original Equipment stocks are likely familiar with Gentherm (THRM) and Ferrari (RACE). But which of these two stocks presents investors with the better value opportunity right now? 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 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.

Currently, Gentherm has a Zacks Rank of #1 (Strong Buy), while Ferrari has a Zacks Rank of #3 (Hold). This means that THRM'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 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.

THRM currently has a forward P/E ratio of 13.29, while RACE has a forward P/E of 36.85. We also note that THRM has a PEG ratio of 0.89. 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. RACE currently has a PEG ratio of 3.54.

Another notable valuation metric for THRM is its P/B ratio of 1.65. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, RACE has a P/B of 22.72.

Based on these metrics and many more, THRM holds a Value grade of A, while RACE has a Value grade of D.

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

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

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