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VMW vs. SNPS: Which Stock Should Value Investors Buy Now?

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Investors interested in Computer - Software stocks are likely familiar with VMware (VMW - Free Report) and Synopsys (SNPS - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.

The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. 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, VMware is sporting a Zacks Rank of #2 (Buy), while Synopsys 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 VMW is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.

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.

Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.

VMW currently has a forward P/E ratio of 16.80, while SNPS has a forward P/E of 43.68. We also note that VMW has a PEG ratio of 1.33. 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. SNPS currently has a PEG ratio of 2.94.

Another notable valuation metric for VMW is its P/B ratio of 4.95. 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, SNPS has a P/B of 9.78.

These are just a few of the metrics contributing to VMW's Value grade of B and SNPS's Value grade of D.

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


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