Investors interested in stocks from the Business - Software Services sector have probably already heard of Synnex (SNX) and Guidewire Software (GWRE). 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, Synnex has a Zacks Rank of #2 (Buy), while Guidewire Software has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that SNX has an improving earnings outlook. But this is only part of the picture for value investors.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its current share price levels.
The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
SNX currently has a forward P/E ratio of 9.08, while GWRE has a forward P/E of 94.60. We also note that SNX has a PEG ratio of 0.88. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. GWRE currently has a PEG ratio of 7.24.
Another notable valuation metric for SNX is its P/B ratio of 1.62. 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, GWRE has a P/B of 5.73.
These metrics, and several others, help SNX earn a Value grade of A, while GWRE has been given a Value grade of F.
SNX sticks out from GWRE in both our Zacks Rank and Style Scores models, so value investors will likely feel that SNX is the better option right now.
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