Investors interested in stocks from the Business - Software Services sector have probably already heard of Synnex (SNX) and Guidewire Software (GWRE). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Right now, Synnex is sporting a Zacks Rank of #1 (Strong Buy), while Guidewire Software has a Zacks Rank of #2 (Buy). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that SNX has 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.
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.
SNX currently has a forward P/E ratio of 10.31, while GWRE has a forward P/E of 100.84. We also note that SNX has a PEG ratio of 0.99. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. GWRE currently has a PEG ratio of 7.20.
Another notable valuation metric for SNX is its P/B ratio of 1.94. 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, GWRE has a P/B of 6.32.
These metrics, and several others, help SNX earn a Value grade of A, while GWRE has been given a Value grade of F.
SNX stands above GWRE thanks to its solid earnings outlook, and based on these valuation figures, we also feel that SNX is the superior value option right now.