Investors interested in stocks from the Computers - IT Services sector have probably already heard of DXC Technology Company. (DXC) and Epam (EPAM). 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.
Right now, both DXC Technology Company. and Epam are sporting a Zacks Rank of # 2 (Buy). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. But this is only part of the picture 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 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.
DXC currently has a forward P/E ratio of 6.28, while EPAM has a forward P/E of 21.78. We also note that DXC has a PEG ratio of 1.30. 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. EPAM currently has a PEG ratio of 2.86.
Another notable valuation metric for DXC is its P/B ratio of 1.12. 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, EPAM has a P/B of 3.75.
These are just a few of the metrics contributing to DXC's Value grade of A and EPAM's Value grade of C.
Both DXC and EPAM are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that DXC 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.
