HSTM vs. SHOP: Which Stock Is the Better Value Option?

Investors interested in stocks from the Internet - Services sector have probably already heard of HealthStream (HSTM) and Shopify (SHOP). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.

The best way to find great value stocks is to pair a strong Zacks Rank with an impressive 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.

HealthStream and Shopify are sporting Zacks Ranks of #2 (Buy) and #4 (Sell), respectively, right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that HSTM has an improving earnings outlook. But this is just one piece of the puzzle 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.

HSTM currently has a forward P/E ratio of 28.70, while SHOP has a forward P/E of 93.19. We also note that HSTM has a PEG ratio of 2.39. 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. SHOP currently has a PEG ratio of 3.77.

Another notable valuation metric for HSTM is its P/B ratio of 1.88. 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, SHOP has a P/B of 17.11.

Based on these metrics and many more, HSTM holds a Value grade of B, while SHOP has a Value grade of F.

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

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

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