Investors interested in Business - Software Services stocks are likely familiar with Cognizant (CTSH - Free Report) and Q2 Holdings (QTWO - 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.
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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Cognizant has a Zacks Rank of #2 (Buy), while Q2 Holdings has a Zacks Rank of #3 (Hold) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that CTSH 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 analyze a variety of traditional, tried-and-true metrics to help find companies 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.
CTSH currently has a forward P/E ratio of 16.26, while QTWO has a forward P/E of 540.25. We also note that CTSH has a PEG ratio of 1.61. 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. QTWO currently has a PEG ratio of 27.01.
Another notable valuation metric for CTSH is its P/B ratio of 3.36. 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, QTWO has a P/B of 10.05.
These metrics, and several others, help CTSH earn a Value grade of B, while QTWO has been given a Value grade of F.
CTSH sticks out from QTWO in both our Zacks Rank and Style Scores models, so value investors will likely feel that CTSH is the better option right now.