Investors interested in stocks from the Computers - IT Services sector have probably already heard of Amdocs (DOX - Free Report) and ServiceNow (NOW - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. 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.
Right now, both Amdocs and ServiceNow are sporting a Zacks Rank of # 2 (Buy). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. But this is just one piece of the puzzle 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.
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.
DOX currently has a forward P/E ratio of 14.16, while NOW has a forward P/E of 80.47. We also note that DOX has a PEG ratio of 1.67. 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. NOW currently has a PEG ratio of 2.87.
Another notable valuation metric for DOX is its P/B ratio of 2.42. 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, NOW has a P/B of 39.99.
These are just a few of the metrics contributing to DOX's Value grade of A and NOW's Value grade of F.
Both DOX and NOW are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that DOX is the superior value option right now.