U.S. Markets closed

DFS vs. FCFS: Which Stock Is the Better Value Option?

Zacks Equity Research

Investors interested in stocks from the Financial - Consumer Loans sector have probably already heard of Discover (DFS) and First Cash Financial Services (FCFS). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.

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, Discover is sporting a Zacks Rank of #2 (Buy), while First Cash Financial Services 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 DFS is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.

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 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.

DFS currently has a forward P/E ratio of 9.21, while FCFS has a forward P/E of 25.52. We also note that DFS has a PEG ratio of 1.21. 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. FCFS currently has a PEG ratio of 1.70.

Another notable valuation metric for DFS is its P/B ratio of 2.42. 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, FCFS has a P/B of 3.24.

These metrics, and several others, help DFS earn a Value grade of A, while FCFS has been given a Value grade of C.

DFS 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 DFS is likely the superior value option right now.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Discover Financial Services (DFS) : Free Stock Analysis Report
 
First Cash, Inc. (FCFS) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research