Investors with an interest in Beverages - Alcohol stocks have likely encountered both Pernod Ricard SA (PRNDY) and Constellation Brands (STZ). 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 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, Pernod Ricard SA is sporting a Zacks Rank of #2 (Buy), while Constellation Brands has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that PRNDY has an improving earnings outlook. But this is just one piece of the puzzle 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.
PRNDY currently has a forward P/E ratio of 19.90, while STZ has a forward P/E of 23.22. We also note that PRNDY has a PEG ratio of 1.48. 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. STZ currently has a PEG ratio of 2.09.
Another notable valuation metric for PRNDY is its P/B ratio of 2.70. 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, STZ has a P/B of 4.90.
Based on these metrics and many more, PRNDY holds a Value grade of B, while STZ has a Value grade of C.
PRNDY has seen stronger estimate revision activity and sports more attractive valuation metrics than STZ, so it seems like value investors will conclude that PRNDY 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