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Investors interested in stocks from the Chemical - Specialty sector have probably already heard of Daqo New Energy (DQ) and Croda International PLC Unsponsored ADR (COIHY). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great 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, Daqo New Energy is sporting a Zacks Rank of #2 (Buy), while Croda International PLC Unsponsored ADR has a Zacks Rank of #4 (Sell). This means that DQ's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. However, value investors will care about much more than just this.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies 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.
DQ currently has a forward P/E ratio of 6.46, while COIHY has a forward P/E of 20.87. We also note that DQ has a PEG ratio of 0.22. 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. COIHY currently has a PEG ratio of 1.74.
Another notable valuation metric for DQ is its P/B ratio of 1.09. 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, COIHY has a P/B of 5.57.
Based on these metrics and many more, DQ holds a Value grade of A, while COIHY has a Value grade of F.
DQ stands above COIHY thanks to its solid earnings outlook, and based on these valuation figures, we also feel that DQ is the superior value option right now.
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