CTSH vs. GWRE: Which Stock Is the Better Value Option?

Investors interested in stocks from the Business – Software Services sector have probably already heard of Cognizant (CTSH) and Guidewire Software (GWRE). 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 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.

Right now, Cognizant is sporting a Zacks Rank of #2 (Buy), while Guidewire Software has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that CTSH likely has seen a stronger improvement to its earnings outlook than GWRE has recently. But this is only part of the picture for value investors.

Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their 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.

CTSH currently has a forward P/E ratio of 15.07, while GWRE has a forward P/E of 89.67. We also note that CTSH has a PEG ratio of 1.37. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock’s expected earnings growth rate. GWRE currently has a PEG ratio of 6.86.

Another notable valuation metric for CTSH is its P/B ratio of 3.12. The P/B ratio is used to compare a stock’s market value with its book value, which is defined as total assets minus total liabilities. For comparison, GWRE has a P/B of 5.58.

These are just a few of the metrics contributing to CTSH’s Value grade of A and GWRE’s Value grade of F.

CTSH stands above GWRE thanks to its solid earnings outlook, and based on these valuation figures, we also feel that CTSH is the superior value option right now.

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