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AXTI vs. AMBA: Which Stock Is the Better Value Option?

Zacks Equity Research

Investors interested in Electronics - Semiconductors stocks are likely familiar with AXT (AXTI) and Ambarella (AMBA). 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.

AXT and Ambarella 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 AXTI 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 tend to look at a number of traditional, tried-and-true figures to help them find stocks 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.

AXTI currently has a forward P/E ratio of 43.09, while AMBA has a forward P/E of 3,629.82. We also note that AXTI has a PEG ratio of 2.87. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. AMBA currently has a PEG ratio of 241.99.

Another notable valuation metric for AXTI is its P/B ratio of 1.18. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, AMBA has a P/B of 3.81.

These are just a few of the metrics contributing to AXTI's Value grade of B and AMBA's Value grade of F.

AXTI has seen stronger estimate revision activity and sports more attractive valuation metrics than AMBA, so it seems like value investors will conclude that AXTI is the superior option right now.


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