Investors interested in stocks from the Computers - IT Services sector have probably already heard of Cognizant (CTSH) and Infosys (INFY). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Cognizant and Infosys are sporting Zacks Ranks of #2 (Buy) and #4 (Sell), respectively, right now. Investors should feel comfortable knowing that CTSH likely has seen a stronger improvement to its earnings outlook than INFY has recently. But this is only part of the picture for value investors.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when 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 12.94, while INFY has a forward P/E of 21.19. We also note that CTSH has a PEG ratio of 1.39. 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. INFY currently has a PEG ratio of 2.80.
Another notable valuation metric for CTSH is its P/B ratio of 2.13. 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, INFY has a P/B of 6.13.
These metrics, and several others, help CTSH earn a Value grade of A, while INFY has been given a Value grade of C.
CTSH has seen stronger estimate revision activity and sports more attractive valuation metrics than INFY, 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.
