Investors interested in Electronics - Semiconductors stocks are likely familiar with Rambus (RMBS) and Ceva (CEVA). 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Rambus has a Zacks Rank of #2 (Buy), while Ceva has a Zacks Rank of #3 (Hold) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that RMBS has an improving earnings outlook. But this is just one factor that value investors are interested in.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its current share price levels.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
RMBS currently has a forward P/E ratio of 11.54, while CEVA has a forward P/E of 73.41. We also note that RMBS has a PEG ratio of 1.15. 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. CEVA currently has a PEG ratio of 3.67.
Another notable valuation metric for RMBS is its P/B ratio of 1.13. 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, CEVA has a P/B of 2.55.
These metrics, and several others, help RMBS earn a Value grade of B, while CEVA has been given a Value grade of F.
RMBS has seen stronger estimate revision activity and sports more attractive valuation metrics than CEVA, so it seems like value investors will conclude that RMBS is the superior option right now.
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