DGII vs. CSCO: Which Stock Is the Better Value Option?

Investors interested in stocks from the Computer - Networking sector have probably already heard of Digi International (DGII) and Cisco Systems (CSCO). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.

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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.

Currently, Digi International has a Zacks Rank of #2 (Buy), while Cisco Systems 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 DGII 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 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.

DGII currently has a forward P/E ratio of 16.21, while CSCO has a forward P/E of 19.11. We also note that DGII has a PEG ratio of 0.95. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. CSCO currently has a PEG ratio of 2.38.

Another notable valuation metric for DGII is its P/B ratio of 2.25. 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, CSCO has a P/B of 6.5.

These metrics, and several others, help DGII earn a Value grade of B, while CSCO has been given a Value grade of C.

DGII sticks out from CSCO in both our Zacks Rank and Style Scores models, so value investors will likely feel that DGII is the better option right now.

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This article originally published on Zacks Investment Research (zacks.com).

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