Investors interested in stocks from the Communication - Components sector have probably already heard of Knowles (KN) and Acacia Communications, Inc. (ACIA). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Currently, both Knowles and Acacia Communications, Inc. are holding a Zacks Rank of # 2 (Buy). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. 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.
KN currently has a forward P/E ratio of 16.24, while ACIA has a forward P/E of 38.74. We also note that KN has a PEG ratio of 1.62. 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. ACIA currently has a PEG ratio of 2.09.
Another notable valuation metric for KN is its P/B ratio of 1.36. 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, ACIA has a P/B of 4.79.
These are just a few of the metrics contributing to KN's Value grade of B and ACIA's Value grade of D.
Both KN and ACIA are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that KN is the superior value option right now.
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