Investors interested in stocks from the Financial Transaction Services sector have probably already heard of Paypal (PYPL) and MasterCard (MA). 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.

Paypal has a Zacks Rank of #2 (Buy), while MasterCard has a Zacks Rank of #3 (Hold) right now. Investors should feel comfortable knowing that PYPL likely has seen a stronger improvement to its earnings outlook than MA has recently. But this is just one piece of the puzzle 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.

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.

PYPL currently has a forward P/E ratio of 13.33, while MA has a forward P/E of 32.73. We also note that PYPL has a PEG ratio of 1.13. 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. MA currently has a PEG ratio of 2.27.

Another notable valuation metric for PYPL is its P/B ratio of 3.24. 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, MA has a P/B of 72.93.

These are just a few of the metrics contributing to PYPL's Value grade of A and MA's Value grade of C.

PYPL is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that PYPL is likely the superior value option right now.

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PayPal Holdings, Inc. (PYPL) : Free Stock Analysis Report

Mastercard Incorporated (MA) : Free Stock Analysis Report

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

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