Investors interested in Outsourcing stocks are likely familiar with Genpact (G) and Paychex (PAYX). 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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Genpact has a Zacks Rank of #2 (Buy), while Paychex has a Zacks Rank of #3 (Hold) right now. This means that G's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one piece of the puzzle for value investors.
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.
G currently has a forward P/E ratio of 17.76, while PAYX has a forward P/E of 26.42. We also note that G has a PEG ratio of 1.27. 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. PAYX currently has a PEG ratio of 3.77.
Another notable valuation metric for G is its P/B ratio of 4.76. 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, PAYX has a P/B of 11.44.
These metrics, and several others, help G earn a Value grade of B, while PAYX has been given a Value grade of D.
G sticks out from PAYX in both our Zacks Rank and Style Scores models, so value investors will likely feel that G is the better option right now.