ALSN vs. RACE: Which Stock Should Value Investors Buy Now?
Investors interested in stocks from the Automotive - Original Equipment sector have probably already heard of Allison Transmission (ALSN) and 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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, Allison Transmission has a Zacks Rank of #2 (Buy), while Ferrari 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 ALSN is likely seeing its earnings outlook improve to a greater extent. But this is just one factor that value investors are interested in.
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.
ALSN currently has a forward P/E ratio of 10.05, while RACE has a forward P/E of 34.83. We also note that ALSN has a PEG ratio of 1. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. RACE currently has a PEG ratio of 1.78.
Another notable valuation metric for ALSN is its P/B ratio of 7.87. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, RACE has a P/B of 16.08.
Based on these metrics and many more, ALSN holds a Value grade of B, while RACE has a Value grade of F.
ALSN 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 ALSN is likely the superior value option right now.
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Allison Transmission Holdings, Inc. (ALSN) : Free Stock Analysis Report
Ferrari N.V. (RACE) : Free Stock Analysis Report
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