Investors looking for stocks in the Internet - Software sector might want to consider either StoneCo Ltd. (STNE) or F5 Networks (FFIV). 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 Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Both StoneCo Ltd. and F5 Networks have a Zacks Rank of #2 (Buy) right now. This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings outlook. But this is only part of the picture for value investors.
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.
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.
STNE currently has a forward P/E ratio of 11.24, while FFIV has a forward P/E of 20.62. We also note that STNE has a PEG ratio of 0.44. 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. FFIV currently has a PEG ratio of 2.99.
Another notable valuation metric for STNE is its P/B ratio of 2.36. 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, FFIV has a P/B of 5.2.
These metrics, and several others, help STNE earn a Value grade of B, while FFIV has been given a Value grade of D.
Both STNE and FFIV are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that STNE is the superior value option right now.
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StoneCo Ltd. (STNE): Free Stock Analysis Report F5, Inc. (FFIV): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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