Investors interested in Utility - Electric Power stocks are likely familiar with NRG Energy (NRG) and RWE AG (RWEOY). 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Currently, NRG Energy has a Zacks Rank of #1 (Strong Buy), while RWE AG has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that NRG 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 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.
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.
NRG currently has a forward P/E ratio of 5.30, while RWEOY has a forward P/E of 11.48. We also note that NRG has a PEG ratio of 0.82. 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. RWEOY currently has a PEG ratio of 7.92.
Another notable valuation metric for NRG is its P/B ratio of 3.20. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, RWEOY has a P/B of 147.11.
Based on these metrics and many more, NRG holds a Value grade of B, while RWEOY has a Value grade of C.
NRG sticks out from RWEOY in both our Zacks Rank and Style Scores models, so value investors will likely feel that NRG is the better option right now.
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