Investors looking for stocks in the Banks - Foreign sector might want to consider either DNB Bank ASA (DNBBY) or Royal Bank (RY). 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.
Right now, DNB Bank ASA is sporting a Zacks Rank of #1 (Strong Buy), while Royal Bank has a Zacks Rank of #4 (Sell). Investors should feel comfortable knowing that DNBBY likely has seen a stronger improvement to its earnings outlook than RY has recently. But this is just one factor that value investors are interested in.
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.
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.
DNBBY currently has a forward P/E ratio of 8.19, while RY has a forward P/E of 11.80. We also note that DNBBY has a PEG ratio of 1.93. 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. RY currently has a PEG ratio of 2.08.
Another notable valuation metric for DNBBY is its P/B ratio of 1.20. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, RY has a P/B of 1.76.
These metrics, and several others, help DNBBY earn a Value grade of B, while RY has been given a Value grade of D.
DNBBY has seen stronger estimate revision activity and sports more attractive valuation metrics than RY, so it seems like value investors will conclude that DNBBY is the superior option right now.
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