Investors interested in stocks from the Medical Services sector have probably already heard of EUROFINS SCIENT (ERFSF) and HealthEquity (HQY). But which of these two companies is the best option for those looking for undervalued stocks? 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Currently, EUROFINS SCIENT has a Zacks Rank of #1 (Strong Buy), while HealthEquity has a Zacks Rank of #2 (Buy). Investors should feel comfortable knowing that ERFSF likely has seen a stronger improvement to its earnings outlook than HQY has recently. 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.
ERFSF currently has a forward P/E ratio of 22.99, while HQY has a forward P/E of 49.53. We also note that ERFSF has a PEG ratio of 1.41. 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. HQY currently has a PEG ratio of 2.48.
Another notable valuation metric for ERFSF is its P/B ratio of 2.80. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, HQY has a P/B of 4.12.
Based on these metrics and many more, ERFSF holds a Value grade of B, while HQY has a Value grade of D.
ERFSF 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 ERFSF is likely the superior value option right now.
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