Investors interested in stocks from the Automotive - Domestic sector have probably already heard of Paccar (PCAR) 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.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Paccar has a Zacks Rank of #1 (Strong Buy), while Tesla 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 PCAR is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.
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.
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.
PCAR currently has a forward P/E ratio of 12.99, while TSLA has a forward P/E of 45.19. We also note that PCAR has a PEG ratio of 1.30. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. TSLA currently has a PEG ratio of 1.44.
Another notable valuation metric for PCAR is its P/B ratio of 2.86. 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, TSLA has a P/B of 14.21.
These are just a few of the metrics contributing to PCAR's Value grade of B and TSLA's Value grade of C.
PCAR is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that PCAR is likely the superior value option right now.
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