Investors with an interest in Internet - Commerce stocks have likely encountered both eBay (EBAY) and Amazon (AMZN). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, eBay has a Zacks Rank of #2 (Buy), while Amazon has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that EBAY has an improving earnings outlook. However, value investors will care about much more than just this.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies 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.
EBAY currently has a forward P/E ratio of 14.38, while AMZN has a forward P/E of 72.44. We also note that EBAY has a PEG ratio of 1.52. 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. AMZN currently has a PEG ratio of 2.25.
Another notable valuation metric for EBAY is its P/B ratio of 8.06. 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, AMZN has a P/B of 16.56.
These metrics, and several others, help EBAY earn a Value grade of B, while AMZN has been given a Value grade of C.
EBAY has seen stronger estimate revision activity and sports more attractive valuation metrics than AMZN, so it seems like value investors will conclude that EBAY is the superior option right now.
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