XP vs. HLI: Which Stock Is the Better Value Option?

Investors with an interest in Financial - Miscellaneous Services stocks have likely encountered both XP Inc.A (XP) and Houlihan Lokey (HLI). 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.

We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.

XP Inc.A and Houlihan Lokey are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that XP is likely seeing its earnings outlook improve to a greater extent. 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.

Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.

XP currently has a forward P/E ratio of 9.91, while HLI has a forward P/E of 18.41. We also note that XP has a PEG ratio of 0.65. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. HLI currently has a PEG ratio of 1.14.

Another notable valuation metric for XP is its P/B ratio of 2.6. 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, HLI has a P/B of 4.89.

These are just a few of the metrics contributing to XP's Value grade of A and HLI's Value grade of C.

XP stands above HLI thanks to its solid earnings outlook, and based on these valuation figures, we also feel that XP is the superior value option right now.

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

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