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International Business Machines Corporation (IBM) - free report >>
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HPE vs. IBM: Which Stock Is the Better Value Option?
Investors looking for stocks in the Computer - Integrated Systems sector might want to consider either Hewlett Packard Enterprise (HPE - Free Report) or IBM (IBM - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? 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 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, Hewlett Packard Enterprise is sporting a Zacks Rank of #2 (Buy), while IBM has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that HPE likely has seen a stronger improvement to its earnings outlook than IBM has recently. However, value investors will care about much more than just this.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their current share price levels.
The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
HPE currently has a forward P/E ratio of 8.01, while IBM has a forward P/E of 14.21. We also note that HPE has a PEG ratio of 1.85. 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. IBM currently has a PEG ratio of 3.48.
Another notable valuation metric for HPE is its P/B ratio of 1.04. 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, IBM has a P/B of 5.52.
Based on these metrics and many more, HPE holds a Value grade of A, while IBM has a Value grade of C.
HPE sticks out from IBM in both our Zacks Rank and Style Scores models, so value investors will likely feel that HPE is the better option right now.