Investors interested in Computers - IT Services stocks are likely familiar with Cognizant (CTSH) and Dynatrace (DT). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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.
Cognizant and Dynatrace are sporting Zacks Ranks of #2 (Buy) and #4 (Sell), respectively, right now. This means that CTSH'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 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 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.
CTSH currently has a forward P/E ratio of 15.08, while DT has a forward P/E of 25.35. We also note that CTSH has a PEG ratio of 1.62. 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. DT currently has a PEG ratio of 1.79.
Another notable valuation metric for CTSH is its P/B ratio of 2.74. 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, DT has a P/B of 4.49.
Based on these metrics and many more, CTSH holds a Value grade of B, while DT has a Value grade of F.
CTSH sticks out from DT in both our Zacks Rank and Style Scores models, so value investors will likely feel that CTSH is the better option right now.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
