Investors with an interest in Business - Software Services stocks have likely encountered both Synnex (SNX - Free Report) and Guidewire Software (GWRE - 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, Synnex has a Zacks Rank of #2 (Buy), while Guidewire Software has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that SNX has an improving earnings outlook. However, value investors will care about much more than just this.
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.
SNX currently has a forward P/E ratio of 9.62, while GWRE has a forward P/E of 102.32. We also note that SNX has a PEG ratio of 0.93. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. GWRE currently has a PEG ratio of 7.83.
Another notable valuation metric for SNX is its P/B ratio of 1.72. 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, GWRE has a P/B of 6.20.
Based on these metrics and many more, SNX holds a Value grade of A, while GWRE has a Value grade of F.
SNX 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 SNX is likely the superior value option right now.