Investors looking for stocks in the Financial – Consumer Loans sector might want to consider either Discover (DFS) or First Cash Financial Services (FCFS). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great 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.
Right now, Discover is sporting a Zacks Rank of #2 (Buy), while First Cash Financial Services has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that DFS likely has seen a stronger improvement to its earnings outlook than FCFS has recently. But this is just one piece of the puzzle 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.
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.
DFS currently has a forward P/E ratio of 9.11, while FCFS has a forward P/E of 26.17. We also note that DFS has a PEG ratio of 0.84. 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. FCFS currently has a PEG ratio of 1.30.
Another notable valuation metric for DFS is its P/B ratio of 2.39. 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, FCFS has a P/B of 2.91.
These are just a few of the metrics contributing to DFS's Value grade of A and FCFS's Value grade of D.
DFS has seen stronger estimate revision activity and sports more attractive valuation metrics than FCFS, so it seems like value investors will conclude that DFS is the superior option right now.
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