Investors interested in Internet - Software and Services stocks are likely familiar with NetEase (NTES - Free Report) and RingCentral (RNG - Free Report) . But which of these two stocks offers value investors a better bang for their buck right now? We'll need to 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
NetEase and RingCentral are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that NTES is likely seeing its earnings outlook improve to a greater extent. But this is just one factor that value investors are interested in.
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.
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.
NTES currently has a forward P/E ratio of 18.44, while RNG has a forward P/E of 198.75. We also note that NTES has a PEG ratio of 0.43. 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. RNG currently has a PEG ratio of 11.57.
Another notable valuation metric for NTES is its P/B ratio of 4.14. 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, RNG has a P/B of 21.48.
These metrics, and several others, help NTES earn a Value grade of B, while RNG has been given a Value grade of F.
NTES is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that NTES is likely the superior value option right now.