Investors interested in Internet - Software and Services stocks are likely familiar with Donnelley Financial Solutions (DFIN - Free Report) and Vonage Holdings (VG - 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.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Donnelley Financial Solutions and Vonage Holdings are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that DFIN has an improving earnings outlook. But this is only part of the picture for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its current share price levels.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
DFIN currently has a forward P/E ratio of 10.24, while VG has a forward P/E of 36.85. We also note that DFIN has a PEG ratio of 1.27. 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. VG currently has a PEG ratio of 7.37.
Another notable valuation metric for DFIN is its P/B ratio of 2.57. 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, VG has a P/B of 5.21.
These metrics, and several others, help DFIN earn a Value grade of A, while VG has been given a Value grade of C.
DFIN has seen stronger estimate revision activity and sports more attractive valuation metrics than VG, so it seems like value investors will conclude that DFIN is the superior option right now.