Investors interested in stocks from the Building Products - Miscellaneous sector have probably already heard of Patrick Industries (PATK) and Installed Building Products (IBP). But which of these two companies is the best option for those looking for undervalued stocks? 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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Patrick Industries has a Zacks Rank of #2 (Buy), while Installed Building Products 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 PATK is likely seeing its earnings outlook improve to a greater extent. But this is just one piece of the puzzle for value investors.
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.
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.
PATK currently has a forward P/E ratio of 9.37, while IBP has a forward P/E of 16.48. We also note that PATK has a PEG ratio of 0.83. 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. IBP currently has a PEG ratio of 1.65.
Another notable valuation metric for PATK is its P/B ratio of 2.62. 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, IBP has a P/B of 8.25.
These are just a few of the metrics contributing to PATK's Value grade of A and IBP's Value grade of C.
PATK 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 PATK is likely the superior value option right now.
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