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Investors interested in stocks from the Computers - IT Services sector have probably already heard of CDW (CDW) and ServiceNow (NOW). But which of these two stocks presents investors with the better value opportunity right now? 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.
Right now, CDW is sporting a Zacks Rank of #2 (Buy), while ServiceNow has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that CDW is likely seeing its earnings outlook improve to a greater extent. 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.
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.
CDW currently has a forward P/E ratio of 22.04, while NOW has a forward P/E of 86.37. We also note that CDW has a PEG ratio of 1.68. 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 3.11.
Another notable valuation metric for CDW is its P/B ratio of 17.24. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, NOW has a P/B of 32.51.
These are just a few of the metrics contributing to CDW's Value grade of B and NOW's Value grade of D.
CDW has seen stronger estimate revision activity and sports more attractive valuation metrics than NOW, so it seems like value investors will conclude that CDW is the superior option right now.
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CDW Corporation (CDW) : Free Stock Analysis Report
ServiceNow, Inc. (NOW) : Free Stock Analysis Report
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