J vs. WMS: Which Stock Is the Better Value Option?

Investors looking for stocks in the Building Products - Miscellaneous sector might want to consider either Jacobs Solutions (J) or Advanced Drainage Systems (WMS). 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.

Jacobs Solutions and Advanced Drainage Systems are both sporting a Zacks Rank of #2 (Buy) right now. 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.

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.

J currently has a forward P/E ratio of 18.87, while WMS has a forward P/E of 28.02. We also note that J has a PEG ratio of 1.39. 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. WMS currently has a PEG ratio of 2.01.

Another notable valuation metric for J is its P/B ratio of 4.58. 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, WMS has a P/B of 6.82.

These metrics, and several others, help J earn a Value grade of B, while WMS has been given a Value grade of D.

Both J and WMS are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that J is the superior value option right now.

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This article originally published on Zacks Investment Research (zacks.com).

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