Investors interested in stocks from the Computers - IT Services sector have probably already heard of Leidos (LDOS) and Dynatrace (DT). 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.
Currently, Leidos has a Zacks Rank of #2 (Buy), while Dynatrace has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that LDOS is likely seeing its earnings outlook improve to a greater extent. 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 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.
LDOS currently has a forward P/E ratio of 15.18, while DT has a forward P/E of 33.41. We also note that LDOS has a PEG ratio of 1.97. 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 2.65.
Another notable valuation metric for LDOS is its P/B ratio of 4.88. 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, DT has a P/B of 6.03.
Based on these metrics and many more, LDOS holds a Value grade of B, while DT has a Value grade of F.
LDOS is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that LDOS is likely the superior value option right now.
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Leidos Holdings, Inc. (LDOS): Free Stock Analysis Report Dynatrace, Inc. (DT): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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