Investors interested in stocks from the Banks - Foreign sector have probably already heard of Banco Itau (ITUB) and HDFC Bank (HDB). 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 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, Banco Itau is sporting a Zacks Rank of #2 (Buy), while HDFC Bank has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that ITUB likely has seen a stronger improvement to its earnings outlook than HDB 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.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
ITUB currently has a forward P/E ratio of 7.17, while HDB has a forward P/E of 22.69. We also note that ITUB has a PEG ratio of 0.46. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. HDB currently has a PEG ratio of 1.22.
Another notable valuation metric for ITUB is its P/B ratio of 1.47. 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, HDB has a P/B of 3.69.
These metrics, and several others, help ITUB earn a Value grade of A, while HDB has been given a Value grade of D.
ITUB stands above HDB thanks to its solid earnings outlook, and based on these valuation figures, we also feel that ITUB is the superior value option right now.
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