Investors interested in stocks from the Building Products - Miscellaneous sector have probably already heard of Arcosa (ACA) and Installed Building Products (IBP). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Arcosa and Installed Building Products are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. Investors should feel comfortable knowing that ACA likely has seen a stronger improvement to its earnings outlook than IBP has recently. But this is only part of the picture for value investors.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their current share price levels.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
ACA currently has a forward P/E ratio of 23.40, while IBP has a forward P/E of 24.90. We also note that ACA has a PEG ratio of 1.46. 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. IBP currently has a PEG ratio of 3.73.
Another notable valuation metric for ACA is its P/B ratio of 2.07. 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, IBP has a P/B of 10.92.
These are just a few of the metrics contributing to ACA's Value grade of B and IBP's Value grade of D.
ACA sticks out from IBP in both our Zacks Rank and Style Scores models, so value investors will likely feel that ACA is the better option right now.
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Arcosa, Inc. (ACA): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).