Investors interested in stocks from the Schools sector have probably already heard of K12 (LRN) and Bright Horizons Family Solutions (BFAM). 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 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, K12 has a Zacks Rank of #1 (Strong Buy), while Bright Horizons Family Solutions has a Zacks Rank of #3 (Hold). This means that LRN's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is only part of the picture for value investors.
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 Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
LRN currently has a forward P/E ratio of 47.24, while BFAM has a forward P/E of 194.21. We also note that LRN has a PEG ratio of 3.15. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. BFAM currently has a PEG ratio of 38.92.
Another notable valuation metric for LRN is its P/B ratio of 1.51. 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, BFAM has a P/B of 6.58.
These metrics, and several others, help LRN earn a Value grade of B, while BFAM has been given a Value grade of F.
LRN has seen stronger estimate revision activity and sports more attractive valuation metrics than BFAM, so it seems like value investors will conclude that LRN is the superior option right now.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
K12 Inc (LRN) : Free Stock Analysis Report
Bright Horizons Family Solutions Inc. (BFAM) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research