Investors interested in Internet - Software and Services stocks are likely familiar with Momo Inc. (MOMO - Free Report) and Vonage Holdings (VG - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Momo Inc. has a Zacks Rank of #2 (Buy), while Vonage Holdings has a Zacks Rank of #3 (Hold) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that MOMO has an improving earnings outlook. But this is just one factor that value investors are interested in.
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.
MOMO currently has a forward P/E ratio of 11.04, while VG has a forward P/E of 44.30. We also note that MOMO has a PEG ratio of 0.46. 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. VG currently has a PEG ratio of 8.86.
Another notable valuation metric for MOMO is its P/B ratio of 4.27. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, VG has a P/B of 4.53.
These metrics, and several others, help MOMO earn a Value grade of B, while VG has been given a Value grade of D.
MOMO has seen stronger estimate revision activity and sports more attractive valuation metrics than VG, so it seems like value investors will conclude that MOMO is the superior option right now.