Investors interested in Chemical - Specialty stocks are likely familiar with Daqo New Energy (DQ) and H. B. Fuller (FUL). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Right now, Daqo New Energy is sporting a Zacks Rank of #2 (Buy), while H. B. Fuller has a Zacks Rank of #4 (Sell). This means that DQ's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is only part of the picture 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.
DQ currently has a forward P/E ratio of 5.27, while FUL has a forward P/E of 13.87. We also note that DQ has a PEG ratio of 0.18. 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. FUL currently has a PEG ratio of 1.90.
Another notable valuation metric for DQ is its P/B ratio of 0.88. 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, FUL has a P/B of 1.38.
These metrics, and several others, help DQ earn a Value grade of A, while FUL has been given a Value grade of D.
DQ has seen stronger estimate revision activity and sports more attractive valuation metrics than FUL, so it seems like value investors will conclude that DQ is the superior option right now.
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