Investors looking for stocks in the Computers - IT Services sector might want to consider either CDW (CDW) or ServiceNow (NOW). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
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 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. 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.
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.
CDW currently has a forward P/E ratio of 20.39, while NOW has a forward P/E of 80.02. We also note that CDW has a PEG ratio of 1.56. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. NOW currently has a PEG ratio of 2.77.
Another notable valuation metric for CDW is its P/B ratio of 20.34. 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, NOW has a P/B of 30.27.
These metrics, and several others, help CDW earn a Value grade of B, while NOW has been given a Value grade of F.
CDW has seen stronger estimate revision activity and sports more attractive valuation metrics than NOW, so it seems like value investors will conclude that CDW is the superior option right now.