MGA or RACE: Which Is the Better Value Stock Right Now?
Investors looking for stocks in the Automotive - Original Equipment sector might want to consider either Magna (MGA) or Ferrari (RACE). 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.
Magna and Ferrari 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 MGA is likely seeing its earnings outlook improve to a greater extent. But this is just one piece of the puzzle 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.
MGA currently has a forward P/E ratio of 9.15, while RACE has a forward P/E of 35.80. We also note that MGA has a PEG ratio of 0.69. 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. RACE currently has a PEG ratio of 3.44.
Another notable valuation metric for MGA is its P/B ratio of 1.42. 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, RACE has a P/B of 22.08.
Based on these metrics and many more, MGA holds a Value grade of A, while RACE has a Value grade of D.
MGA has seen stronger estimate revision activity and sports more attractive valuation metrics than RACE, so it seems like value investors will conclude that MGA is the superior option right now.
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This article originally published on Zacks Investment Research (zacks.com).
