Investors interested in stocks from the Financial Transaction Services sector have probably already heard of Shift4 Payments (FOUR) and MasterCard (MA). 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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Currently, Shift4 Payments has a Zacks Rank of #2 (Buy), while MasterCard 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 FOUR has an improving earnings outlook. But this is just one piece of the puzzle 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.
FOUR currently has a forward P/E ratio of 21.87, while MA has a forward P/E of 33.74. We also note that FOUR has a PEG ratio of 0.42. 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. MA currently has a PEG ratio of 1.85.
Another notable valuation metric for FOUR is its P/B ratio of 9.69. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, MA has a P/B of 60.50.
Based on these metrics and many more, FOUR holds a Value grade of B, while MA has a Value grade of D.
FOUR 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 FOUR is likely the superior value option right now.
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