Investors interested in Computers - IT Services stocks are likely familiar with Epam (EPAM) 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.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Epam has a Zacks Rank of #2 (Buy), while Dynatrace has a Zacks Rank of #3 (Hold) right now. This means that EPAM's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. However, value investors will care about much more than just this.
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 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.
EPAM currently has a forward P/E ratio of 13.96, while DT has a forward P/E of 31.77. We also note that EPAM has a PEG ratio of 1.77. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. DT currently has a PEG ratio of 2.48.
Another notable valuation metric for EPAM is its P/B ratio of 2.39. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, DT has a P/B of 5.7.
These are just a few of the metrics contributing to EPAM's Value grade of B and DT's Value grade of D.
EPAM has seen stronger estimate revision activity and sports more attractive valuation metrics than DT, so it seems like value investors will conclude that EPAM 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.
