Investors looking for stocks in the Banks - Foreign sector might want to consider either HSBC (HSBC) or HDFC Bank (HDB). 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.
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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
HSBC and HDFC Bank are sporting Zacks Ranks of #2 (Buy) and #4 (Sell), respectively, right now. This means that HSBC's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst 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.
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.
HSBC currently has a forward P/E ratio of 10.63, while HDB has a forward P/E of 15.59. We also note that HSBC has a PEG ratio of 0.87. 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. HDB currently has a PEG ratio of 1.23.
Another notable valuation metric for HSBC is its P/B ratio of 1.51. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, HDB has a P/B of 1.96.
Based on these metrics and many more, HSBC holds a Value grade of B, while HDB has a Value grade of F.
HSBC sticks out from HDB in both our Zacks Rank and Style Scores models, so value investors will likely feel that HSBC is the better option right now.
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HSBC Holdings plc (HSBC): Free Stock Analysis Report
HDFC Bank Limited (HDB): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).