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TWTR vs. WDAY: Which Stock Should Value Investors Buy Now?

Zacks Equity Research

Investors looking for stocks in the Internet - Software sector might want to consider either Twitter (TWTR) or Workday (WDAY). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to 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.

Twitter 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 TWTR is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.

Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their 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.

TWTR currently has a forward P/E ratio of 12.48, while WDAY has a forward P/E of 94.36. We also note that TWTR has a PEG ratio of 0.53. 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 3.48.

Another notable valuation metric for TWTR is its P/B ratio of 2.82. 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, WDAY has a P/B of 16.36.

These metrics, and several others, help TWTR earn a Value grade of B, while WDAY has been given a Value grade of F.

TWTR has seen stronger estimate revision activity and sports more attractive valuation metrics than WDAY, so it seems like value investors will conclude that TWTR is the superior option right now.


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