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GSK vs. NVO: Which Stock Is the Better Value Option?

Zacks Equity Research
·2-min read

Investors looking for stocks in the Large Cap Pharmaceuticals sector might want to consider either GlaxoSmithKline (GSK) or Novo Nordisk (NVO). 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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.

Right now, GlaxoSmithKline is sporting a Zacks Rank of #2 (Buy), while Novo Nordisk 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 GSK is likely seeing its earnings outlook improve to a greater extent. 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.

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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.

GSK currently has a forward P/E ratio of 14.15, while NVO has a forward P/E of 32.88. We also note that GSK has a PEG ratio of 2.45. 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. NVO currently has a PEG ratio of 2.72.

Another notable valuation metric for GSK is its P/B ratio of 3.87. 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, NVO has a P/B of 24.13.

These are just a few of the metrics contributing to GSK's Value grade of A and NVO's Value grade of C.

GSK stands above NVO thanks to its solid earnings outlook, and based on these valuation figures, we also feel that GSK is the superior value option right now.


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GlaxoSmithKline plc (GSK) : Free Stock Analysis Report
 
Novo Nordisk AS (NVO) : Free Stock Analysis Report
 
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Zacks Investment Research