Investors interested in Banks - Midwest stocks are likely familiar with UMB Financial (UMBF) and Commerce Bancshares (CBSH). 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 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.
UMB Financial has a Zacks Rank of #2 (Buy), while Commerce Bancshares 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 UMBF is likely seeing its earnings outlook improve to a greater extent. But this is just one factor that value investors are interested in.
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 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.
UMBF currently has a forward P/E ratio of 14.81, while CBSH has a forward P/E of 20.37. We also note that UMBF has a PEG ratio of 2.82. 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. CBSH currently has a PEG ratio of 6.79.
Another notable valuation metric for UMBF is its P/B ratio of 1.27. 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, CBSH has a P/B of 2.62.
Based on these metrics and many more, UMBF holds a Value grade of B, while CBSH has a Value grade of D.
UMBF stands above CBSH thanks to its solid earnings outlook, and based on these valuation figures, we also feel that UMBF is the superior value option right now.