Investors with an interest in Computers - IT Services stocks have likely encountered both Leidos (LDOS) and Dynatrace (DT). But which of these two companies is the best option for those looking for undervalued stocks? 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Right now, Leidos is sporting a Zacks Rank of #2 (Buy), while Dynatrace 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. 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.
LDOS currently has a forward P/E ratio of 16.67, while DT has a forward P/E of 30.32. We also note that LDOS has a PEG ratio of 1.78. 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. DT currently has a PEG ratio of 2.37.
Another notable valuation metric for LDOS is its P/B ratio of 5.1. 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, DT has a P/B of 5.44.
These metrics, and several others, help LDOS earn a Value grade of B, while DT has been given a Value grade of D.
LDOS sticks out from DT in both our Zacks Rank and Style Scores models, so value investors will likely feel that LDOS is the better option right now.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Leidos Holdings, Inc. (LDOS): Free Stock Analysis Report Dynatrace, Inc. (DT): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research
