Investors interested in stocks from the Computer - Software sector have probably already heard of Oracle (ORCL - Free Report) and Pegasystems (PEGA - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. 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, Oracle is sporting a Zacks Rank of #2 (Buy), while Pegasystems 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 ORCL is likely seeing its earnings outlook improve to a greater extent. But this is just one piece of the puzzle for value investors.
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 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.
ORCL currently has a forward P/E ratio of 13.67, while PEGA has a forward P/E of 691. We also note that ORCL has a PEG ratio of 1.39. 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. PEGA currently has a PEG ratio of 86.38.
Another notable valuation metric for ORCL is its P/B ratio of 7.96. 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, PEGA has a P/B of 9.27.
Based on these metrics and many more, ORCL holds a Value grade of B, while PEGA has a Value grade of F.
ORCL 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 ORCL is likely the superior value option right now.