Investors interested in Automotive – Original Equipment stocks are likely familiar with Lear (LEA) and Driven Brands Holdings Inc. (DRVN). 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.
Right now, Lear is sporting a Zacks Rank of #2 (Buy), while Driven Brands Holdings Inc. has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that LEA is likely seeing its earnings outlook improve to a greater extent. But this is just one piece of the puzzle for value investors.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their 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.
LEA currently has a forward P/E ratio of 14.65, while DRVN has a forward P/E of 25.22. We also note that LEA has a PEG ratio of 0.37. 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. DRVN currently has a PEG ratio of 1.52.
Another notable valuation metric for LEA is its P/B ratio of 1.54. 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, DRVN has a P/B of 2.79.
These metrics, and several others, help LEA earn a Value grade of A, while DRVN has been given a Value grade of C.
LEA 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 LEA is likely the superior value 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
Lear Corporation (LEA) : Free Stock Analysis Report
Driven Brands Holdings Inc. (DRVN) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research