Investors looking for stocks in the Financial - Miscellaneous Services sector might want to consider either Intercorp Financial Services Inc. (IFS) or American Express (AXP). But which of these two companies is the best option for those looking for undervalued stocks? 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 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, Intercorp Financial Services Inc. has a Zacks Rank of #1 (Strong Buy), while American Express has a Zacks Rank of #3 (Hold). This means that IFS'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 also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its 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.
IFS currently has a forward P/E ratio of 9.34, while AXP has a forward P/E of 19.36. We also note that IFS has a PEG ratio of 0.77. 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. AXP currently has a PEG ratio of 1.38.
Another notable valuation metric for IFS is its P/B ratio of 1.69. 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, AXP has a P/B of 6.84.
These metrics, and several others, help IFS earn a Value grade of B, while AXP has been given a Value grade of C.
IFS is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that IFS is likely the superior value option right now.
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Intercorp Financial Services Inc. (IFS): Free Stock Analysis Report
American Express Company (AXP): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).