Investors interested in stocks from the Financial - Miscellaneous Services sector have probably already heard of Synchrony (SYF) and Houlihan Lokey (HLI). But which of these two stocks presents investors with the better value opportunity right now? 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.
Right now, Synchrony is sporting a Zacks Rank of #2 (Buy), while Houlihan Lokey has a Zacks Rank of #3 (Hold). This means that SYF's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst 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.
SYF currently has a forward P/E ratio of 6.95, while HLI has a forward P/E of 16.78. We also note that SYF has a PEG ratio of 0.78. 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. HLI currently has a PEG ratio of 1.38.
Another notable valuation metric for SYF is its P/B ratio of 1.49. 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, HLI has a P/B of 3.49.
These are just a few of the metrics contributing to SYF's Value grade of A and HLI's Value grade of C.
SYF stands above HLI thanks to its solid earnings outlook, and based on these valuation figures, we also feel that SYF is the superior value option right now.
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