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BBSI vs. PAYX: Which Stock Is the Better Value Option?

Investors interested in stocks from the Outsourcing sector have probably already heard of Barrett Business Services (BBSI) and Paychex (PAYX). 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.

Right now, both Barrett Business Services and Paychex are sporting a Zacks Rank of # 2 (Buy). 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. However, value investors will care about much more than just this.

Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its current share price levels.

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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.

BBSI currently has a forward P/E ratio of 11.17, while PAYX has a forward P/E of 25. We also note that BBSI has a PEG ratio of 0.80. 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. PAYX currently has a PEG ratio of 3.33.

Another notable valuation metric for BBSI is its P/B ratio of 3.07. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, PAYX has a P/B of 11.36.

These metrics, and several others, help BBSI earn a Value grade of A, while PAYX has been given a Value grade of C.

Both BBSI and PAYX are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that BBSI is the superior value option right now.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Barrett Business Services, Inc. (BBSI) : Free Stock Analysis Report

Paychex, Inc. (PAYX) : Free Stock Analysis Report

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Zacks Investment Research