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KMTUY or CAT: Which Is the Better Value Stock Right Now?

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Zacks Equity Research
·2 min read
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Investors interested in stocks from the Manufacturing - Construction and Mining sector have probably already heard of Komatsu Ltd. (KMTUY) and Caterpillar (CAT). But which of these two stocks presents investors with the better value opportunity right now? 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.

Komatsu Ltd. and Caterpillar are sporting Zacks Ranks of #1 (Strong Buy) and #2 (Buy), respectively, right now. This means that KMTUY's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. However, value investors will care about much more than just this.

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.

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.

KMTUY currently has a forward P/E ratio of 18.16, while CAT has a forward P/E of 28.27. We also note that KMTUY has a PEG ratio of 0.82. 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. CAT currently has a PEG ratio of 2.36.

Another notable valuation metric for KMTUY is its P/B ratio of 1.66. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, CAT has a P/B of 8.25.

These are just a few of the metrics contributing to KMTUY's Value grade of B and CAT's Value grade of C.

KMTUY 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 KMTUY is likely the superior value option right now.


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