Investors interested in Utility - Water Supply stocks are likely familiar with Veolia Environnement SA (VEOEY) and American Water Works (AWK). 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, Veolia Environnement SA has a Zacks Rank of #1 (Strong Buy), while American Water Works has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that VEOEY likely has seen a stronger improvement to its earnings outlook than AWK has recently. But this is just one factor that value investors are interested in.
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 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.
VEOEY currently has a forward P/E ratio of 8.54, while AWK has a forward P/E of 30.86. We also note that VEOEY has a PEG ratio of 0.73. 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. AWK currently has a PEG ratio of 3.75.
Another notable valuation metric for VEOEY is its P/B ratio of 1.41. 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, AWK has a P/B of 3.
These metrics, and several others, help VEOEY earn a Value grade of A, while AWK has been given a Value grade of D.
VEOEY 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 VEOEY is likely the superior value option right now.
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