Investors interested in stocks from the Utility - Water Supply sector have probably already heard of Veolia Environnement SA (VEOEY) and American Water Works (AWK). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Veolia Environnement SA has a Zacks Rank of #1 (Strong Buy), while American Water Works 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 VEOEY is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.
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 Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
VEOEY currently has a forward P/E ratio of 8.41, while AWK has a forward P/E of 31.13. We also note that VEOEY has a PEG ratio of 0.72. 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. AWK currently has a PEG ratio of 3.78.
Another notable valuation metric for VEOEY is its P/B ratio of 1.32. 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, AWK has a P/B of 3.03.
Based on these metrics and many more, VEOEY holds a Value grade of A, while AWK has a Value grade of D.
VEOEY has seen stronger estimate revision activity and sports more attractive valuation metrics than AWK, so it seems like value investors will conclude that VEOEY is the superior option right now.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report