Investors looking for stocks in the Internet - Software and Services sector might want to consider either NetEase (NTES) or RingCentral (RNG). 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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
NetEase and RingCentral are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This means that NTES'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 also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their 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.
NTES currently has a forward P/E ratio of 21.94, while RNG has a forward P/E of 228.94. We also note that NTES has a PEG ratio of 0.51. 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 12.47.
Another notable valuation metric for NTES is its P/B ratio of 4.82. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, RNG has a P/B of 24.60.
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.