Investors looking for stocks in the Computers - IT Services sector might want to consider either Dell Technologies (DELL) or 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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, Dell Technologies has 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 DELL is likely seeing its earnings outlook improve to a greater extent. But this is just one factor that value investors are interested in.
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.
DELL currently has a forward P/E ratio of 6.94, while NOW has a forward P/E of 75.03. We also note that DELL has a PEG ratio of 0.58. 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 2.68.
Another notable valuation metric for DELL is its P/B ratio of 11.67. 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 36.13.
These are just a few of the metrics contributing to DELL's Value grade of A and NOW's Value grade of F.
DELL 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 DELL is likely the superior value option right now.
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