Investors interested in stocks from the Wireless Equipment sector have probably already heard of Ericsson (ERIC) and Qualcomm (QCOM). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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 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.
Ericsson and Qualcomm are sporting Zacks Ranks of #2 (Buy) and #4 (Sell), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that ERIC is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.
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.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
ERIC currently has a forward P/E ratio of 17.13, while QCOM has a forward P/E of 22.14. We also note that ERIC has a PEG ratio of 0.66. 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. QCOM currently has a PEG ratio of 1.20.
Another notable valuation metric for ERIC is its P/B ratio of 3.52. 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, QCOM has a P/B of 29.79.
These metrics, and several others, help ERIC earn a Value grade of A, while QCOM has been given a Value grade of C.
ERIC stands above QCOM thanks to its solid earnings outlook, and based on these valuation figures, we also feel that ERIC is the superior value option right now.
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