NWG vs. HDB: Which Stock Is the Better Value Option?
Investors with an interest in Banks - Foreign stocks have likely encountered both NatWest Group (NWG) and HDFC Bank (HDB). 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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Right now, NatWest Group is sporting a Zacks Rank of #2 (Buy), while HDFC Bank has a Zacks Rank of #4 (Sell). This means that NWG's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. However, value investors will care about much more than just this.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its 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.
NWG currently has a forward P/E ratio of 7.86, while HDB has a forward P/E of 13.90. We also note that NWG has a PEG ratio of 0.51. 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. HDB currently has a PEG ratio of 0.89.
Another notable valuation metric for NWG is its P/B ratio of 1.09. 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, HDB has a P/B of 1.93.
Based on these metrics and many more, NWG holds a Value grade of B, while HDB has a Value grade of F.
NWG 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 NWG is likely the superior value option right now.
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This article originally published on Zacks Investment Research (zacks.com).
