Investors interested in stocks from the Internet - Software sector have probably already heard of NIC (EGOV - Free Report) and COUPA SOFTWARE (COUP - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Right now, both NIC and COUPA SOFTWARE are sporting a Zacks Rank of # 2 (Buy). This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings outlook. But this is only part of the picture for value investors.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when 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.
EGOV currently has a forward P/E ratio of 28.06, while COUP has a forward P/E of 841.63. We also note that EGOV has a PEG ratio of 1.56. 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. COUP currently has a PEG ratio of 22.68.
Another notable valuation metric for EGOV is its P/B ratio of 5.94. 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, COUP has a P/B of 18.64.
Based on these metrics and many more, EGOV holds a Value grade of B, while COUP has a Value grade of F.
Both EGOV and COUP are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that EGOV is the superior value option right now.