Investors looking for stocks in the Business - Software Services sector might want to consider either Wipro Limited (WIT) or Guidewire Software (GWRE). But which of these two stocks presents investors with the better value opportunity right now? 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Currently, Wipro Limited 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 WIT 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 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.
WIT currently has a forward P/E ratio of 15.29, while GWRE has a forward P/E of 102.34. We also note that WIT has a PEG ratio of 1.42. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. GWRE currently has a PEG ratio of 7.83.
Another notable valuation metric for WIT is its P/B ratio of 3.02. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, GWRE has a P/B of 6.20.
These metrics, and several others, help WIT earn a Value grade of A, while GWRE has been given a Value grade of F.
WIT stands above GWRE thanks to its solid earnings outlook, and based on these valuation figures, we also feel that WIT is the superior value option right now.
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