Investors interested in stocks from the Outsourcing sector have probably already heard of Sykes Enterprises (SYKE) and Automatic Data Processing (ADP). 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.
Sykes Enterprises has a Zacks Rank of #2 (Buy), while Automatic Data Processing has a Zacks Rank of #3 (Hold) right now. Investors should feel comfortable knowing that SYKE likely has seen a stronger improvement to its earnings outlook than ADP has recently. But this is only part of the picture 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 Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
SYKE currently has a forward P/E ratio of 12.74, while ADP has a forward P/E of 25.17. We also note that SYKE has a PEG ratio of 1.27. 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. ADP currently has a PEG ratio of 2.10.
Another notable valuation metric for SYKE is its P/B ratio of 1.45. 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, ADP has a P/B of 12.49.
These are just a few of the metrics contributing to SYKE's Value grade of B and ADP's Value grade of C.
SYKE sticks out from ADP in both our Zacks Rank and Style Scores models, so value investors will likely feel that SYKE is the better option right now.