Investors interested in stocks from the Internet - Software sector have probably already heard of Digital Turbine (APPS) and Zoom Communications (ZM). 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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Currently, Digital Turbine has a Zacks Rank of #1 (Strong Buy), while Zoom Communications has a Zacks Rank of #2 (Buy). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that APPS is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether 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.
APPS currently has a forward P/E ratio of 12.28, while ZM has a forward P/E of 16.07. We also note that APPS has a PEG ratio of 0.30. 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. ZM currently has a PEG ratio of 5.60.
Another notable valuation metric for APPS is its P/B ratio of 2.55. 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, ZM has a P/B of 3.04.
These are just a few of the metrics contributing to APPS's Value grade of B and ZM's Value grade of C.
APPS stands above ZM thanks to its solid earnings outlook, and based on these valuation figures, we also feel that APPS is the superior value option right now.
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Digital Turbine, Inc. (APPS): Free Stock Analysis Report Zoom Communications, Inc. (ZM): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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