Investors interested in stocks from the Computer - Networking sector have probably already heard of NetScout Systems (NTCT) and Digi International (DGII). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Right now, both NetScout Systems and Digi International are sporting a Zacks Rank of # 2 (Buy). Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. But this is just one factor that value investors are interested in.
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.
NTCT currently has a forward P/E ratio of 19.27, while DGII has a forward P/E of 45.76. We also note that NTCT has a PEG ratio of 1.93. 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. DGII currently has a PEG ratio of 3.39.
Another notable valuation metric for NTCT is its P/B ratio of 1.01. 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, DGII has a P/B of 1.11.
These metrics, and several others, help NTCT earn a Value grade of B, while DGII has been given a Value grade of D.
Both NTCT and DGII are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that NTCT is the superior value option right now.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.