Investors interested in stocks from the Internet - Software sector have probably already heard of Covetrus (CVET - Free Report) and Arco Platform Limited (ARCE - Free Report) . But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. 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, Covetrus has a Zacks Rank of #2 (Buy), while Arco Platform Limited has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that CVET likely has seen a stronger improvement to its earnings outlook than ARCE has recently. But this is just one piece of the puzzle for value investors.
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.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
CVET currently has a forward P/E ratio of 18.86, while ARCE has a forward P/E of 43.57. We also note that CVET has a PEG ratio of 0.75. 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. ARCE currently has a PEG ratio of 0.90.
Another notable valuation metric for CVET is its P/B ratio of 1.10. 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, ARCE has a P/B of 4.18.
Based on these metrics and many more, CVET holds a Value grade of A, while ARCE has a Value grade of D.
CVET stands above ARCE thanks to its solid earnings outlook, and based on these valuation figures, we also feel that CVET is the superior value option right now.