Investors interested in stocks from the Medical Services sector have probably already heard of Civitas Solutions (CIVI) and HealthEquity (HQY). But which of these two companies is the best option for those looking for undervalued stocks? 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 Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Civitas Solutions and HealthEquity are sporting Zacks Ranks of #1 (Strong Buy) and #3 (Hold), respectively, right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that CIVI has an improving earnings outlook. However, value investors will care about much more than just this.
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.
CIVI currently has a forward P/E ratio of 14.52, while HQY has a forward P/E of 73.59. We also note that CIVI has a PEG ratio of 1.45. 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. HQY currently has a PEG ratio of 2.21.
Another notable valuation metric for CIVI is its P/B ratio of 3.67. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, HQY has a P/B of 11.83.
These are just a few of the metrics contributing to CIVI's Value grade of A and HQY's Value grade of F.
CIVI 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 CIVI is likely the superior value option right now.
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