Investors interested in Chemical - Specialty stocks are likely familiar with Element Solutions (ESI) and Novozymes AS (NVZMY). 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Currently, Element Solutions has a Zacks Rank of #2 (Buy), while Novozymes AS has a Zacks Rank of #3 (Hold). This means that ESI'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 analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their current share price levels.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
ESI currently has a forward P/E ratio of 11.42, while NVZMY has a forward P/E of 33.70. We also note that ESI has a PEG ratio of 0.74. 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. NVZMY currently has a PEG ratio of 7.42.
Another notable valuation metric for ESI is its P/B ratio of 1.77. 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, NVZMY has a P/B of 6.63.
These metrics, and several others, help ESI earn a Value grade of B, while NVZMY has been given a Value grade of D.
ESI 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 ESI is likely the superior value option right now.
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