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CDW or NOW: Which Is the Better Value Stock Right Now?

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Investors interested in stocks from the Computers - IT Services sector have probably already heard of CDW (CDW - Free Report) and ServiceNow (NOW - Free Report) . But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.

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.

CDW has a Zacks Rank of #2 (Buy), while ServiceNow has a Zacks Rank of #3 (Hold) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that CDW has an improving earnings outlook. However, value investors will care about much more than just this.

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.

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.

CDW currently has a forward P/E ratio of 24.49, while NOW has a forward P/E of 87.92. We also note that CDW has a PEG ratio of 1.87. 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. NOW currently has a PEG ratio of 3.13.

Another notable valuation metric for CDW is its P/B ratio of 19.43. 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 31.42.

Based on these metrics and many more, CDW holds a Value grade of B, while NOW has a Value grade of D.

CDW sticks out from NOW in both our Zacks Rank and Style Scores models, so value investors will likely feel that CDW is the better option right now.


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