Investors interested in stocks from the Internet - Services sector have probably already heard of Internet Initiative Japan (IIJI - Free Report) and Shopify (SHOP - 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.
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.
Currently, Internet Initiative Japan has a Zacks Rank of #2 (Buy), while Shopify 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 IIJI is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.
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.
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.
IIJI currently has a forward P/E ratio of 24.09, while SHOP has a forward P/E of 409.64. We also note that IIJI has a PEG ratio of 1.78. 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. SHOP currently has a PEG ratio of 16.39.
Another notable valuation metric for IIJI is its P/B ratio of 1.47. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, SHOP has a P/B of 8.17.
These metrics, and several others, help IIJI earn a Value grade of A, while SHOP has been given a Value grade of F.
IIJI is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that IIJI is likely the superior value option right now.