CTSH or ROP: Which Is the Better Value Stock Right Now?
Investors interested in stocks from the Computers - IT Services sector have probably already heard of Cognizant (CTSH) and Roper Technologies (ROP). But which of these two companies is the best option for those looking for undervalued stocks? 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Both Cognizant and Roper Technologies have a Zacks Rank of #2 (Buy) right now. This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings outlook. But this is only part of the picture for value investors.
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 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.
CTSH currently has a forward P/E ratio of 9.89, while ROP has a forward P/E of 15.93. We also note that CTSH has a PEG ratio of 1.06. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. ROP currently has a PEG ratio of 1.77.
Another notable valuation metric for CTSH is its P/B ratio of 1.77. 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, ROP has a P/B of 1.87.
These are just a few of the metrics contributing to CTSH's Value grade of A and ROP's Value grade of C.
Both CTSH and ROP are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that CTSH is the superior value option right now.
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This article originally published on Zacks Investment Research (zacks.com).
