Investors with an interest in Internet - Software stocks have likely encountered both Sogou (SOGO) and Workday (WDAY). But which of these two companies is the best option for those looking for undervalued stocks? 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Sogou and Workday are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, 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 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.
SOGO currently has a forward P/E ratio of 20.84, while WDAY has a forward P/E of 103.48. We also note that SOGO has a PEG ratio of 1.03. 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. WDAY currently has a PEG ratio of 3.82.
Another notable valuation metric for SOGO is its P/B ratio of 1.98. 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, WDAY has a P/B of 17.94.
Based on these metrics and many more, SOGO holds a Value grade of A, while WDAY has a Value grade of F.
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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