Investors looking for stocks in the Cosmetics sector might want to consider either Shiseido Co. (SSDOY) or Estee Lauder (EL). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. 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, both Shiseido Co. and Estee Lauder are holding a Zacks Rank of #2 (Buy). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. But this is just one factor that value investors are interested in.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies 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.
SSDOY currently has a forward P/E ratio of 21.07, while EL has a forward P/E of 34.07. We also note that SSDOY has a PEG ratio of 0.66. 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. EL currently has a PEG ratio of 0.84.
Another notable valuation metric for SSDOY is its P/B ratio of 1.54. 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, EL has a P/B of 7.43.
These are just a few of the metrics contributing to SSDOY's Value grade of B and EL's Value grade of D.
Both SSDOY and EL are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that SSDOY is the superior value option right now.
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Shiseido Co. (SSDOY): Free Stock Analysis Report
The Estee Lauder Companies Inc. (EL): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).