Investors with an interest in Beverages - Alcohol stocks have likely encountered both Ambev (ABEV) and Diageo (DEO). 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 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, Ambev is sporting a Zacks Rank of #2 (Buy), while Diageo has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that ABEV likely has seen a stronger improvement to its earnings outlook than DEO has recently. However, value investors will care about much more than just this.
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 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.
ABEV currently has a forward P/E ratio of 19.16, while DEO has a forward P/E of 21.49. We also note that ABEV has a PEG ratio of 2.11. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. DEO currently has a PEG ratio of 2.27.
Another notable valuation metric for ABEV is its P/B ratio of 2.68. 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, DEO has a P/B of 8.54.
Based on these metrics and many more, ABEV holds a Value grade of B, while DEO has a Value grade of C.
ABEV stands above DEO thanks to its solid earnings outlook, and based on these valuation figures, we also feel that ABEV is 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
Ambev S.A. (ABEV) : Free Stock Analysis Report
Diageo plc (DEO) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research