Investors with an interest in Internet - Software and Services stocks have likely encountered both Sabre (SABR - Free Report) and RingCentral (RNG - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Sabre and RingCentral are both sporting a Zacks Rank of # 2 (Buy) right now. This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings outlook. But this is just one piece of the puzzle for value investors.
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.
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.
SABR currently has a forward P/E ratio of 17.74, while RNG has a forward P/E of 126.34. We also note that SABR has a PEG ratio of 2.47. 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. RNG currently has a PEG ratio of 4.34.
Another notable valuation metric for SABR is its P/B ratio of 8.47. 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, RNG has a P/B of 22.46.
Based on these metrics and many more, SABR holds a Value grade of B, while RNG has a Value grade of F.
Both SABR and RNG are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that SABR is the superior value option right now.