CTSH vs. NOW: Which Stock Is the Better Value Option?

Investors looking for stocks in the Computers - IT Services sector might want to consider either Cognizant (CTSH) or ServiceNow (NOW). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Cognizant and ServiceNow are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that CTSH is likely seeing its earnings outlook improve to a greater extent. But this is just one piece of the puzzle for value investors.

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.

CTSH currently has a forward P/E ratio of 15.39, while NOW has a forward P/E of 59.66. We also note that CTSH has a PEG ratio of 1.78. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. NOW currently has a PEG ratio of 2.52.

Another notable valuation metric for CTSH is its P/B ratio of 2.59. 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 20.08.

These are just a few of the metrics contributing to CTSH's Value grade of B and NOW's Value grade of F.

CTSH stands above NOW thanks to its solid earnings outlook, and based on these valuation figures, we also feel that CTSH is the superior value option right now.

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

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