Investors interested in stocks from the Computers – IT Services sector have probably already heard of PERSPECTA INC (PRSP) and ServiceNow (NOW). But which of these two stocks presents investors with the better value opportunity right now? Let’s 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.
Right now, PERSPECTA INC is sporting a Zacks Rank of #2 (Buy), while ServiceNow has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that PRSP is likely seeing its earnings outlook improve to a greater extent. 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 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.
PRSP currently has a forward P/E ratio of 13.30, while NOW has a forward P/E of 84.53. We also note that PRSP has a PEG ratio of 1.66. 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. NOW currently has a PEG ratio of 3.25.
Another notable valuation metric for PRSP is its P/B ratio of 1.91. The P/B ratio pits a stock’s market value against its book value, which is defined as total assets minus total liabilities. For comparison, NOW has a P/B of 39.43.
Based on these metrics and many more, PRSP holds a Value grade of A, while NOW has a Value grade of F.
PRSP has seen stronger estimate revision activity and sports more attractive valuation metrics than NOW, so it seems like value investors will conclude that PRSP is the superior option right now.
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