Investors interested in stocks from the Computers - IT Services sector have probably already heard of Leidos (LDOS) and ServiceNow (NOW). But which of these two companies is the best option for those looking for undervalued stocks? 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Currently, Leidos has a Zacks Rank of #2 (Buy), while ServiceNow has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that LDOS has an improving earnings outlook. However, value investors will care about much more than just this.
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.
LDOS currently has a forward P/E ratio of 16.12, while NOW has a forward P/E of 50.67. We also note that LDOS has a PEG ratio of 2.10. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. NOW currently has a PEG ratio of 2.13.
Another notable valuation metric for LDOS is its P/B ratio of 4.86. 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, NOW has a P/B of 16.19.
Based on these metrics and many more, LDOS holds a Value grade of B, while NOW has a Value grade of F.
LDOS has seen stronger estimate revision activity and sports more attractive valuation metrics than NOW, so it seems like value investors will conclude that LDOS is the superior option right now.
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Leidos Holdings, Inc. (LDOS): Free Stock Analysis Report ServiceNow, Inc. (NOW): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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