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LRN or BFAM: Which Is the Better Value Stock Right Now?

Investors interested in Schools stocks are likely familiar with K12 (LRN) and Bright Horizons Family Solutions (BFAM). 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.

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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Currently, K12 has a Zacks Rank of #2 (Buy), while Bright Horizons Family Solutions has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that LRN likely has seen a stronger improvement to its earnings outlook than BFAM has recently. But this is only part of the picture for value investors.

Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its 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.

LRN currently has a forward P/E ratio of 17.67, while BFAM has a forward P/E of 65.21. We also note that LRN has a PEG ratio of 0.88. 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. BFAM currently has a PEG ratio of 2.65.

Another notable valuation metric for LRN is its P/B ratio of 2.16. 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, BFAM has a P/B of 6.51.

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

LRN has seen stronger estimate revision activity and sports more attractive valuation metrics than BFAM, so it seems like value investors will conclude that LRN is the superior option right now.


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