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MCK vs. ALGN: Which Stock Is the Better Value Option?

Zacks Equity Research

Investors interested in Medical - Dental Supplies stocks are likely familiar with McKesson (MCK) and Align Technology (ALGN). 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.

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.

Right now, McKesson is sporting a Zacks Rank of #2 (Buy), while Align Technology has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that MCK likely has seen a stronger improvement to its earnings outlook than ALGN has recently. 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 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.

MCK currently has a forward P/E ratio of 10.58, while ALGN has a forward P/E of 40.87. We also note that MCK has a PEG ratio of 1.52. 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. ALGN currently has a PEG ratio of 1.68.

Another notable valuation metric for MCK is its P/B ratio of 3.49. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, ALGN has a P/B of 12.44.

These are just a few of the metrics contributing to MCK's Value grade of A and ALGN's Value grade of C.

MCK sticks out from ALGN in both our Zacks Rank and Style Scores models, so value investors will likely feel that MCK is the better option right now.


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