Investors interested in Communication - Network Software stocks are likely familiar with Ribbon Communications (RBBN) and A10 Networks (ATEN). 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Ribbon Communications has a Zacks Rank of #2 (Buy), while A10 Networks has a Zacks Rank of #3 (Hold) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that RBBN is likely seeing its earnings outlook improve to a greater extent. But this is just one piece of the puzzle 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.
RBBN currently has a forward P/E ratio of 8.78, while ATEN has a forward P/E of 184.57. We also note that RBBN has a PEG ratio of 0.73. 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. ATEN currently has a PEG ratio of 7.85.
Another notable valuation metric for RBBN is its P/B ratio of 1.01. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, ATEN has a P/B of 4.81.
These metrics, and several others, help RBBN earn a Value grade of B, while ATEN has been given a Value grade of D.
RBBN has seen stronger estimate revision activity and sports more attractive valuation metrics than ATEN, so it seems like value investors will conclude that RBBN is the superior option right now.
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