Investors interested in stocks from the Electronics - Miscellaneous Components sector have probably already heard of Fabrinet (FN) and TE Connectivity (TEL). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Currently, Fabrinet has a Zacks Rank of #1 (Strong Buy), while TE Connectivity has a Zacks Rank of #4 (Sell). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that FN has an improving earnings outlook. However, value investors will care about much more than just this.
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.
FN currently has a forward P/E ratio of 14.96, while TEL has a forward P/E of 15.15. We also note that FN has a PEG ratio of 1.15. 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. TEL currently has a PEG ratio of 1.41.
Another notable valuation metric for FN is its P/B ratio of 2.55. 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, TEL has a P/B of 2.73.
Based on these metrics and many more, FN holds a Value grade of B, while TEL has a Value grade of C.
FN 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 FN is likely the superior value option right now.
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Fabrinet (FN) : Free Stock Analysis Report
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