Investors interested in stocks from the Business - Software Services sector have probably already heard of Cognizant (CTSH - Free Report) and Tyler Technologies (TYL - 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Currently, Cognizant has a Zacks Rank of #2 (Buy), while Tyler Technologies has a Zacks Rank of #4 (Sell). Investors should feel comfortable knowing that CTSH likely has seen a stronger improvement to its earnings outlook than TYL has recently. However, value investors will care about much more than just this.
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.
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.
CTSH currently has a forward P/E ratio of 16.51, while TYL has a forward P/E of 39.62. We also note that CTSH has a PEG ratio of 1.63. 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. TYL currently has a PEG ratio of 3.96.
Another notable valuation metric for CTSH is its P/B ratio of 3.76. 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, TYL has a P/B of 6.14.
Based on these metrics and many more, CTSH holds a Value grade of B, while TYL has a Value grade of F.
CTSH stands above TYL thanks to its solid earnings outlook, and based on these valuation figures, we also feel that CTSH is the superior value option right now.