Investors looking for stocks in the Internet - Services sector might want to consider either Internet Initiative Japan (IIJI - Free Report) or Shopify (SHOP - 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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Internet Initiative Japan has a Zacks Rank of #2 (Buy), while Shopify has a Zacks Rank of #4 (Sell) right now. 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 just one factor that value investors are interested in.
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 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.
IIJI currently has a forward P/E ratio of 25.78, while SHOP has a forward P/E of 204.80. We also note that IIJI has a PEG ratio of 1.91. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. SHOP currently has a PEG ratio of 8.65.
Another notable valuation metric for IIJI is its P/B ratio of 1.58. 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, SHOP has a P/B of 8.83.
Based on these metrics and many more, IIJI holds a Value grade of A, while SHOP has a Value grade of F.
IIJI has seen stronger estimate revision activity and sports more attractive valuation metrics than SHOP, so it seems like value investors will conclude that IIJI is the superior option right now.