Investors with an interest in Computers - IT Services stocks have likely encountered both 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 Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
CDW and ServiceNow are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This means that CDW's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is only part of the picture for value investors.
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 17.34, while NOW has a forward P/E of 74.92. We also note that CDW has a PEG ratio of 1.32. 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. NOW currently has a PEG ratio of 2.59.
Another notable valuation metric for CDW is its P/B ratio of 17.37. 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, NOW has a P/B of 28.20.
These are just a few of the metrics contributing to CDW's Value grade of B and NOW's 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.