Investors looking for stocks in the Medical - Instruments sector might want to consider either Alcon (ALC) or Idexx Laboratories (IDXX). But which of these two companies is the best option for those looking for undervalued stocks? Let's 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 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 Alcon and Idexx Laboratories are holding a Zacks Rank of #2 (Buy). Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. But this is only part of the picture for value investors.
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 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.
ALC currently has a forward P/E ratio of 19.59, while IDXX has a forward P/E of 38.48. We also note that ALC has a PEG ratio of 1.70. 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. IDXX currently has a PEG ratio of 3.09.
Another notable valuation metric for ALC is its P/B ratio of 1.53. 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, IDXX has a P/B of 28.84.
Based on these metrics and many more, ALC holds a Value grade of B, while IDXX has a Value grade of D.
Both ALC and IDXX are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that ALC is the superior value option right now.
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This article originally published on Zacks Investment Research (zacks.com).