Investors interested in stocks from the Internet - Content sector have probably already heard of YY (YY) and Yelp (YELP). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Right now, both YY and Yelp are sporting a Zacks Rank of # 2 (Buy). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. However, value investors will care about much more than just this.
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.
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.
YY currently has a forward P/E ratio of 8.93, while YELP has a forward P/E of 32.72. We also note that YY has a PEG ratio of 0.39. 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. YELP currently has a PEG ratio of 1.66.
Another notable valuation metric for YY is its P/B ratio of 1.49. 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, YELP has a P/B of 3.29.
These are just a few of the metrics contributing to YY's Value grade of A and YELP's Value grade of D.
Both YY and YELP are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that YY is the superior value option right now.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
YY Inc. (YY) : Free Stock Analysis Report
Yelp Inc. (YELP) : Free Stock Analysis Report
To read this article on Zacks.com click here.