Investors with an interest in Outsourcing stocks have likely encountered both Barrett Business Services (BBSI) and Paychex (PAYX). 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Barrett Business Services and Paychex are sporting Zacks Ranks of #1 (Strong Buy) and #2 (Buy), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that BBSI is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture 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.
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.
BBSI currently has a forward P/E ratio of 13.73, while PAYX has a forward P/E of 23.49. We also note that BBSI has a PEG ratio of 0.98. 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. PAYX currently has a PEG ratio of 2.99.
Another notable valuation metric for BBSI is its P/B ratio of 3.64. 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, PAYX has a P/B of 11.12.
These are just a few of the metrics contributing to BBSI's Value grade of A and PAYX's Value grade of D.
BBSI stands above PAYX thanks to its solid earnings outlook, and based on these valuation figures, we also feel that BBSI is the superior value 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.
