Investors interested in stocks from the Medical Info Systems sector have probably already heard of AllScripts Healthcare (MDRX - Free Report) and HMS Holdings (HMSY - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Right now, AllScripts Healthcare is sporting a Zacks Rank of #2 (Buy), while HMS Holdings 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 MDRX 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 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 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.
MDRX currently has a forward P/E ratio of 14.87, while HMSY has a forward P/E of 25.45. We also note that MDRX has a PEG ratio of 1.62. 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. HMSY currently has a PEG ratio of 2.31.
Another notable valuation metric for MDRX is its P/B ratio of 1.28. 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, HMSY has a P/B of 3.61.
These are just a few of the metrics contributing to MDRX's Value grade of A and HMSY's Value grade of C.
MDRX stands above HMSY thanks to its solid earnings outlook, and based on these valuation figures, we also feel that MDRX is the superior value option right now.