Investors interested in stocks from the Computers - IT Services sector have probably already heard of Cognizant (CTSH) and Hexagon AB Unsponsored ADR (HXGBY). 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.
Cognizant has a Zacks Rank of #2 (Buy), while Hexagon AB Unsponsored ADR has a Zacks Rank of #3 (Hold) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that CTSH is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.
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.
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.
CTSH currently has a forward P/E ratio of 15.26, while HXGBY has a forward P/E of 24.37. We also note that CTSH has a PEG ratio of 1.64. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. HXGBY currently has a PEG ratio of 3.03.
Another notable valuation metric for CTSH is its P/B ratio of 2.6. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, HXGBY has a P/B of 2.71.
Based on these metrics and many more, CTSH holds a Value grade of B, while HXGBY has a Value grade of D.
CTSH has seen stronger estimate revision activity and sports more attractive valuation metrics than HXGBY, so it seems like value investors will conclude that CTSH is the superior 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.
