Investors looking for stocks in the Computers - IT Services sector might want to consider either Leidos (LDOS) or 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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Leidos has a Zacks Rank of #2 (Buy), while ServiceNow has a Zacks Rank of #3 (Hold) right now. 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 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.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
LDOS currently has a forward P/E ratio of 15.92, while NOW has a forward P/E of 36.58. We also note that LDOS has a PEG ratio of 1.37. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. NOW currently has a PEG ratio of 1.49.
Another notable valuation metric for LDOS is its P/B ratio of 5.05. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, NOW has a P/B of 13.58.
These metrics, and several others, help LDOS earn a Value grade of B, while NOW has been given a Value grade of F.
LDOS stands above NOW thanks to its solid earnings outlook, and based on these valuation figures, we also feel that LDOS is the superior value 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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