Investors interested in stocks from the Banks – Foreign sector have probably already heard of Banco Santander (SAN – Free Report) and HDFC Bank (HDB – Free Report) . But which of these two stocks presents investors with the better value opportunity right now? 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 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.
Currently, Banco Santander has a Zacks Rank of #1 (Strong Buy), while HDFC Bank has a Zacks Rank of #4 (Sell). This means that SAN’s earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one piece of the puzzle for value investors.
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 Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
SAN currently has a forward P/E ratio of 5.51, while HDB has a forward P/E of 20.36. We also note that SAN has a PEG ratio of 0.43. 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. HDB currently has a PEG ratio of 1.71.
Another notable valuation metric for SAN is its P/B ratio of 0.62. 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 2.74.
These metrics, and several others, help SAN earn a Value grade of B, while HDB has been given a Value grade of D.
SAN stands above HDB thanks to its solid earnings outlook, and based on these valuation figures, we also feel that SAN is the superior value option right now.
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