Investors interested in stocks from the Internet - Commerce sector have probably already heard of Solo Brands, Inc. (DTC) and MercadoLibre (MELI). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Currently, both Solo Brands, Inc. and MercadoLibre are holding a Zacks Rank of # 2 (Buy). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that both of these companies have improving earnings outlooks. 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.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
DTC currently has a forward P/E ratio of 5.40, while MELI has a forward P/E of 72.46. We also note that DTC has a PEG ratio of 0.46. 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. MELI currently has a PEG ratio of 1.30.
Another notable valuation metric for DTC is its P/B ratio of 0.83. 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, MELI has a P/B of 30.19.
These metrics, and several others, help DTC earn a Value grade of A, while MELI has been given a Value grade of C.
Both DTC and MELI are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that DTC is the superior value option right now.
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