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.
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, both Dell Technologies and ServiceNow are sporting 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 both of these companies have improving earnings outlooks. However, value investors will care about much more than just this.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks 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.
DELL currently has a forward P/E ratio of 8.61, while NOW has a forward P/E of 88.81. We also note that DELL has a PEG ratio of 0.72. 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 3.14.
Another notable valuation metric for DELL is its P/B ratio of 11.38. 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 31.72.
Based on these metrics and many more, DELL holds a Value grade of A, while NOW has a Value grade of D.
Both DELL and NOW are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that DELL is the superior value option right now.
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