Investors with an interest in Business - Software Services stocks have likely encountered both Wipro Limited (WIT - Free Report) and Q2 Holdings (QTWO - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? 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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Wipro Limited has a Zacks Rank of #2 (Buy), while Q2 Holdings has a Zacks Rank of #3 (Hold) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that WIT has an improving earnings outlook. But this is just one factor that value investors are interested in.
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 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.
WIT currently has a forward P/E ratio of 15.75, while QTWO has a forward P/E of 670.33. We also note that WIT has a PEG ratio of 1.47. 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. QTWO currently has a PEG ratio of 33.52.
Another notable valuation metric for WIT is its P/B ratio of 3.11. 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 10.03.
These metrics, and several others, help WIT earn a Value grade of A, while QTWO has been given a Value grade of F.
WIT has seen stronger estimate revision activity and sports more attractive valuation metrics than QTWO, so it seems like value investors will conclude that WIT is the superior option right now.