Investors looking for stocks in the Computers - IT Services sector might want to consider either Infosys (INFY) or CoStar Group (CSGP). But which of these two stocks presents investors with the better value opportunity right now? 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Infosys has a Zacks Rank of #2 (Buy), while CoStar Group has a Zacks Rank of #3 (Hold) right now. This means that INFY's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. However, value investors will care about much more than just this.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether 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.
INFY currently has a forward P/E ratio of 18.53, while CSGP has a forward P/E of 65.71. We also note that INFY has a PEG ratio of 1.99. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. CSGP currently has a PEG ratio of 4.38.
Another notable valuation metric for INFY is its P/B ratio of 5.05. 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, CSGP has a P/B of 7.42.
These are just a few of the metrics contributing to INFY's Value grade of B and CSGP's Value grade of F.
INFY has seen stronger estimate revision activity and sports more attractive valuation metrics than CSGP, so it seems like value investors will conclude that INFY is the superior option right now.