SMCI vs. WDC: Which Stock Is the Better Value Option?
Investors looking for stocks in the Computer- Storage Devices sector might want to consider either Super Micro Computer (SMCI) or Western Digital (WDC). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Right now, both Super Micro Computer and Western Digital are sporting a Zacks Rank of #2 (Buy). This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings outlook. But this is only part of the picture for value investors.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks 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.
SMCI currently has a forward P/E ratio of 9.39, while WDC has a forward P/E of 22.64. We also note that SMCI has a PEG ratio of 0.71. 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. WDC currently has a PEG ratio of 1.89.
Another notable valuation metric for SMCI is its P/B ratio of 2.41. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, WDC has a P/B of 17.63.
These are just a few of the metrics contributing to SMCI's Value grade of B and WDC's Value grade of D.
Both SMCI and WDC are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that SMCI is the superior value option right now.
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This article originally published on Zacks Investment Research (zacks.com).
