Investors interested in Internet - Software stocks are likely familiar with Sogou (SOGO) and Arco Platform Limited (ARCE). 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.
Sogou and Arco Platform Limited are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. Investors should feel comfortable knowing that SOGO likely has seen a stronger improvement to its earnings outlook than ARCE has recently. However, value investors will care about much more than just this.
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.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
SOGO currently has a forward P/E ratio of 15.52, while ARCE has a forward P/E of 43.47. We also note that SOGO has a PEG ratio of 0.77. 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. ARCE currently has a PEG ratio of 0.90.
Another notable valuation metric for SOGO is its P/B ratio of 1.46. 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, ARCE has a P/B of 4.37.
These are just a few of the metrics contributing to SOGO's Value grade of A and ARCE's Value grade of C.
SOGO sticks out from ARCE in both our Zacks Rank and Style Scores models, so value investors will likely feel that SOGO is the better option right now.