Investors interested in Financial - Mortgage & Related Services stocks are likely familiar with Federal Agricultural Mortgage (AGM) and Zillow Group (ZG). But which of these two companies is the best option for those looking for undervalued stocks? 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Right now, Federal Agricultural Mortgage is sporting a Zacks Rank of #2 (Buy), while Zillow Group has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that AGM is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.
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.
AGM currently has a forward P/E ratio of 8.82, while ZG has a forward P/E of 21.70. We also note that AGM has a PEG ratio of 0.80. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. ZG currently has a PEG ratio of 0.87.
Another notable valuation metric for AGM is its P/B ratio of 1.53. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, ZG has a P/B of 2.27.
Based on these metrics and many more, AGM holds a Value grade of A, while ZG has a Value grade of D.
AGM 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 AGM is likely the superior value option right now.
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Federal Agricultural Mortgage Corporation (AGM): Free Stock Analysis Report
Zillow Group, Inc. (ZG): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).