Investors interested in Computers - IT Services stocks are likely familiar with CDW (CDW - Free Report) and ServiceNow (NOW - 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.
Currently, CDW has a Zacks Rank of #2 (Buy), while ServiceNow 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 CDW is likely seeing its earnings outlook improve to a greater extent. But this is just one factor that value investors are interested in.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks 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.
CDW currently has a forward P/E ratio of 22.99, while NOW has a forward P/E of 86.19. We also note that CDW has a PEG ratio of 1.75. 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. NOW currently has a PEG ratio of 3.08.
Another notable valuation metric for CDW is its P/B ratio of 21.14. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, NOW has a P/B of 36.61.
These metrics, and several others, help CDW earn a Value grade of B, while NOW has been given a Value grade of F.
CDW stands above NOW thanks to its solid earnings outlook, and based on these valuation figures, we also feel that CDW is the superior value option right now.