Investors interested in stocks from the Medical - Generic Drugs sector have probably already heard of Mallinckrodt (MNK) and Amphastar Pharmaceuticals (AMPH). But which of these two companies is the best option for those looking for undervalued stocks? Let's 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Mallinckrodt has a Zacks Rank of #1 (Strong Buy), while Amphastar Pharmaceuticals has a Zacks Rank of #3 (Hold) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that MNK is likely seeing its earnings outlook improve to a greater extent. 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.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
MNK currently has a forward P/E ratio of 2.68, while AMPH has a forward P/E of 29.06. We also note that MNK has a PEG ratio of 0.25. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. AMPH currently has a PEG ratio of 1.16.
Another notable valuation metric for MNK is its P/B ratio of 0.25. 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, AMPH has a P/B of 2.97.
Based on these metrics and many more, MNK holds a Value grade of A, while AMPH has a Value grade of C.
MNK 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 MNK is likely the superior value 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
To read this article on Zacks.com click here.
Zacks Investment Research