ALSN vs. RACE: Which Stock Is the Better Value Option?

Investors interested in Automotive - Original Equipment stocks are likely familiar with Allison Transmission (ALSN) and Ferrari (RACE). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to take a closer look.

Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Both Allison Transmission and Ferrari have a Zacks Rank of #2 (Buy) right now. Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. However, value investors will care about much more than just this.

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.

ALSN currently has a forward P/E ratio of 12.90, while RACE has a forward P/E of 28.94. We also note that ALSN has a PEG ratio of 0.75. 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. RACE currently has a PEG ratio of 3.23.

Another notable valuation metric for ALSN is its P/B ratio of 5.02. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, RACE has a P/B of 17.45.

Based on these metrics and many more, ALSN holds a Value grade of A, while RACE has a Value grade of D.

Both ALSN and RACE are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that ALSN 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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