Markets

ADS vs. ENV: Which Stock Is the Better Value Option?

Investors interested in Financial Transaction Services stocks are likely familiar with Alliance Data Systems (ADS) and Envestnet (ENV). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.

We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great 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.

Alliance Data Systems has a Zacks Rank of #2 (Buy), while Envestnet has a Zacks Rank of #4 (Sell) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that ADS has an improving earnings 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.

ADS currently has a forward P/E ratio of 6.46, while ENV has a forward P/E of 27.64. We also note that ADS has a PEG ratio of 0.45. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. ENV currently has a PEG ratio of 1.58.

Another notable valuation metric for ADS is its P/B ratio of 2.69. 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, ENV has a P/B of 3.57.

These metrics, and several others, help ADS earn a Value grade of A, while ENV has been given a Value grade of F.

ADS sticks out from ENV in both our Zacks Rank and Style Scores models, so value investors will likely feel that ADS is the better option right now.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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