GM vs. TSLA: Which Stock Is the Better Value Option?
Investors with an interest in Automotive - Domestic stocks have likely encountered both General Motors Company (GM) and Tesla (TSLA). 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.
General Motors Company and Tesla are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This means that GM's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. However, value investors will care about much more than just this.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks 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.
GM currently has a forward P/E ratio of 5.65, while TSLA has a forward P/E of 51.39. We also note that GM has a PEG ratio of 0.57. 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. TSLA currently has a PEG ratio of 2.09.
Another notable valuation metric for GM is its P/B ratio of 0.68. 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, TSLA has a P/B of 13.74.
These are just a few of the metrics contributing to GM's Value grade of A and TSLA's Value grade of C.
GM has seen stronger estimate revision activity and sports more attractive valuation metrics than TSLA, so it seems like value investors will conclude that GM is the superior option right now.
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