Investors with an interest in Computers - IT Services stocks have likely encountered both Infosys (INFY) and Wix.com (WIX). 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Infosys has a Zacks Rank of #2 (Buy), while Wix.com has a Zacks Rank of #3 (Hold) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that INFY has an improving earnings outlook. But this is just one factor that value investors are interested in.
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.
INFY currently has a forward P/E ratio of 14.51, while WIX has a forward P/E of 93. We also note that INFY has a PEG ratio of 1.45. 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. WIX currently has a PEG ratio of 2.66.
Another notable valuation metric for INFY is its P/B ratio of 4.08. 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, WIX has a P/B of 24.86.
These metrics, and several others, help INFY earn a Value grade of B, while WIX has been given a Value grade of F.
INFY has seen stronger estimate revision activity and sports more attractive valuation metrics than WIX, so it seems like value investors will conclude that INFY is the superior option right now.
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