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CDW vs. NOW: Which Stock Should Value Investors Buy Now?

Zacks Equity Research

Investors with an interest in Computers - IT Services stocks have likely encountered both CDW (CDW) and ServiceNow (NOW). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.

The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.

Right now, CDW is sporting a Zacks Rank of #2 (Buy), while ServiceNow has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that CDW likely has seen a stronger improvement to its earnings outlook than NOW has recently. But this is just one factor that value investors are interested in.

Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their 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 23.89, while NOW has a forward P/E of 87.75. We also note that CDW has a PEG ratio of 1.82. 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. NOW currently has a PEG ratio of 3.13.

Another notable valuation metric for CDW is its P/B ratio of 21.97. 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 37.28.

These metrics, and several others, help CDW earn a Value grade of B, while NOW has been given a Value grade of F.

CDW is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that CDW is likely the superior value option right now.


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