Investors with an interest in Medical – Dental Supplies stocks have likely encountered both McKesson (MCK) and Align Technology (ALGN). But which of these two stocks presents investors with the better value opportunity right now? 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, McKesson has a Zacks Rank of #2 (Buy), while Align Technology has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that MCK has an improving earnings outlook. But this is only part of the picture for value investors.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their 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.
MCK currently has a forward P/E ratio of 9.49, while ALGN has a forward P/E of 47.63. We also note that MCK has a PEG ratio of 1.45. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company’s expected earnings growth rate. ALGN currently has a PEG ratio of 2.21.
Another notable valuation metric for MCK is its P/B ratio of 2.61. 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, ALGN has a P/B of 16.43.
These are just a few of the metrics contributing to MCK’s Value grade of A and ALGN’s Value grade of D.
MCK has seen stronger estimate revision activity and sports more attractive valuation metrics than ALGN, so it seems like value investors will conclude that MCK is the superior option right now.
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