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SOGO vs. ARCE: Which Stock Should Value Investors Buy Now?

Zacks Equity Research

Investors with an interest in Internet - Software stocks have likely encountered both Sogou (SOGO) and Arco Platform Limited (ARCE). 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.

Sogou has a Zacks Rank of #2 (Buy), while Arco Platform Limited 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 SOGO is likely seeing its earnings outlook improve to a greater extent. But this is just one factor that value investors are interested in.

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.

SOGO currently has a forward P/E ratio of 18.47, while ARCE has a forward P/E of 51.42. We also note that SOGO has a PEG ratio of 0.91. 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. ARCE currently has a PEG ratio of 1.05.

Another notable valuation metric for SOGO is its P/B ratio of 1.29. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, ARCE has a P/B of 3.

These metrics, and several others, help SOGO earn a Value grade of A, while ARCE has been given a Value grade of D.

SOGO is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that SOGO is likely the superior value option right now.


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Arco Platform Limited (ARCE) : Free Stock Analysis Report
 
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