Which stock currently offers the better value?

Investors interested in stocks in the electronics and semiconductor sector are likely familiar with ASE Technology Hldg (ASX) and Ambarella (AMBA). But which of these two stocks is more attractive to value investors? To find out, we need to take a closer look at the two.

Everyone has their own methods for finding great value opportunities, but our model combines an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores evaluate companies based on specific traits.

Currently, ASE Technology Hldg has a Zacks Rank of #1 (Strong Buy), while Ambarella has a Zacks Rank of #3 (Hold). This means that ASX’s earnings estimate revisions have been more impressive, so investors should feel comfortable with the improved analyst forecast. But that’s only one piece of the puzzle for value investors.

Value investors also try to analyze a wide range of traditional numbers and metrics to determine whether a company is undervalued at its current share price level.

The Value category of the Style Scores system identifies undervalued companies using a number of key metrics, including the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other fundamentals that help us determine a company’s fair value.

ASX currently has a forward P/E ratio of 9.94, while AMBA has a forward P/E ratio of 121.60. We also note that ASX has a PEG ratio of 3.28. This popular number is similar to the widely used P/E ratio, but the PEG ratio also takes into account a company’s expected EPS growth rate. AMBA currently has a PEG ratio of 8.53.

Another important valuation metric for ASX is its P/B ratio of 1.12. The P/B ratio compares a stock’s market value to its book value, which is defined as total assets minus total liabilities. For comparison, AMBA has a P/B ratio of 3.56.

These and several other metrics help ASX earn an A rating, while AMBA earns an F rating.

ASX is above AMBA thanks to its solid earnings outlook and based on these valuation numbers, we also believe ASX is the better value option currently.

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