ALC vs. PEN: Which Stock Should Value Investors Buy Now?

Investors with an interest in Medical - Instruments stocks have likely encountered both Alcon (ALC) and Penumbra (PEN). But which of these two stocks presents investors with the better value opportunity right now? 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.

Alcon and Penumbra are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This means that ALC's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one factor that value investors are interested in.

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.

ALC currently has a forward P/E ratio of 21.21, while PEN has a forward P/E of 63.86. We also note that ALC has a PEG ratio of 1.91. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. PEN currently has a PEG ratio of 1.99.

Another notable valuation metric for ALC is its P/B ratio of 1.65. 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, PEN has a P/B of 8.91.

Based on these metrics and many more, ALC holds a Value grade of B, while PEN has a Value grade of D.

ALC sticks out from PEN in both our Zacks Rank and Style Scores models, so value investors will likely feel that ALC is the better option right now.

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

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