Investors interested in stocks from the Chemical - Diversified sector have probably already heard of Koppers (KOP) and Praxair (PX). But which of these two stocks presents investors with the better value opportunity right now? 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 Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Currently, Koppers has a Zacks Rank of #2 (Buy), while Praxair has a Zacks Rank of #3 (Hold). This means that KOP'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 analyze a variety of traditional, tried-and-true metrics to help find companies 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.
KOP currently has a forward P/E ratio of 7.98, while PX has a forward P/E of 23.53. We also note that KOP has a PEG ratio of 0.44. 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. PX currently has a PEG ratio of 2.05.
Another notable valuation metric for KOP is its P/B ratio of 6.77. 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, PX has a P/B of 7.01.
These are just a few of the metrics contributing to KOP's Value grade of A and PX's Value grade of C.
KOP 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 KOP is likely the superior value option right now.
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Koppers Holdings Inc. (KOP) : Free Stock Analysis Report
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