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SOGO vs. ARCE: Which Stock Is the Better Value Option?

Zacks Equity Research

Investors looking for stocks in the Internet - Software sector might want to consider either Sogou (SOGO) or Arco Platform Limited (ARCE). But which of these two companies is the best option for those looking for undervalued stocks? 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.

Sogou has a Zacks Rank of #1 (Strong Buy), while Arco Platform Limited has a Zacks Rank of #3 (Hold) right now. This means that SOGO's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is only part of the picture for value investors.

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.

Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.

SOGO currently has a forward P/E ratio of 15.60, while ARCE has a forward P/E of 48.82. We also note that SOGO has a PEG ratio of 0.77. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. ARCE currently has a PEG ratio of 1.01.

Another notable valuation metric for SOGO is its P/B ratio of 1.66. 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, ARCE has a P/B of 4.69.

Based on these metrics and many more, SOGO holds a Value grade of B, while ARCE has a Value grade of D.

SOGO sticks out from ARCE in both our Zacks Rank and Style Scores models, so value investors will likely feel that SOGO is the better option right now.


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Zacks Investment Research