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HPE vs. IBM: Which Stock Is the Better Value Option?

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Investors interested in Computer - Integrated Systems stocks are likely familiar with Hewlett Packard Enterprise (HPE - Free Report) and IBM (IBM - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.

We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Hewlett Packard Enterprise and IBM are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that HPE is likely seeing its earnings outlook improve to a greater extent. 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.

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.

HPE currently has a forward P/E ratio of 8.02, while IBM has a forward P/E of 15.51. We also note that HPE has a PEG ratio of 2.02. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. IBM currently has a PEG ratio of 3.71.

Another notable valuation metric for HPE is its P/B ratio of 1.06. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, IBM has a P/B of 5.98.

Based on these metrics and many more, HPE holds a Value grade of A, while IBM has a Value grade of C.

HPE has seen stronger estimate revision activity and sports more attractive valuation metrics than IBM, so it seems like value investors will conclude that HPE is the superior option right now.


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