Investors looking for stocks in the Automotive – Domestic sector might want to consider either Paccar (PCAR) or Tesla (TSLA). 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.
Paccar and Tesla are sporting Zacks Ranks of #1 (Strong Buy) and #3 (Hold), respectively, right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that PCAR has an improving earnings outlook. 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 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.
PCAR currently has a forward P/E ratio of 12.43, while TSLA has a forward P/E of 44.17. We also note that PCAR has a PEG ratio of 1.24. 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. TSLA currently has a PEG ratio of 1.41.
Another notable valuation metric for PCAR is its P/B ratio of 2.73. 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, TSLA has a P/B of 13.89.
These are just a few of the metrics contributing to PCAR’s Value grade of B and TSLA’s Value grade of D.
PCAR stands above TSLA thanks to its solid earnings outlook, and based on these valuation figures, we also feel that PCAR is the superior value option right now.
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