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DQ vs. VSM: Which Stock Should Value Investors Buy Now?

Zacks Equity Research

Investors looking for stocks in the Chemical - Specialty sector might want to consider either Daqo New Energy (DQ) or Versum Materials (VSM). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.

Currently, Daqo New Energy has a Zacks Rank of #2 (Buy), while Versum Materials has a Zacks Rank of #4 (Sell). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that DQ 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.

Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.

DQ currently has a forward P/E ratio of 9.52, while VSM has a forward P/E of 15.42. We also note that DQ has a PEG ratio of 0.33. 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. VSM currently has a PEG ratio of 1.19.

Another notable valuation metric for DQ is its P/B ratio of 0.78. 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, VSM has a P/B of 19.25.

Based on these metrics and many more, DQ holds a Value grade of A, while VSM has a Value grade of D.

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


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