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.
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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Currently, CDW has a Zacks Rank of #2 (Buy), while ServiceNow has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that CDW likely has seen a stronger improvement to its earnings outlook than NOW has recently. But this is just one factor that value investors are interested in.
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.
CDW currently has a forward P/E ratio of 22.83, while NOW has a forward P/E of 83.94. We also note that CDW has a PEG ratio of 1.74. 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. NOW currently has a PEG ratio of 3.
Another notable valuation metric for CDW is its P/B ratio of 21. 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, NOW has a P/B of 35.68.
These metrics, and several others, help CDW earn a Value grade of B, while NOW has been given a Value grade of F.
CDW 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 CDW is likely the superior value option right now.