FIVN or ZM: Which Is the Better Value Stock Right Now?

Investors interested in Internet - Software stocks are likely familiar with Five9 (FIVN) and Zoom Communications (ZM). 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.

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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Five9 has a Zacks Rank of #2 (Buy), while Zoom Communications has a Zacks Rank of #4 (Sell) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that FIVN 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 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.

FIVN currently has a forward P/E ratio of 6.93, while ZM has a forward P/E of 17.63. We also note that FIVN has a PEG ratio of 0.43. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. ZM currently has a PEG ratio of 3.97.

Another notable valuation metric for FIVN is its P/B ratio of 2.05. 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, ZM has a P/B of 3.11.

These metrics, and several others, help FIVN earn a Value grade of A, while ZM has been given a Value grade of C.

FIVN stands above ZM thanks to its solid earnings outlook, and based on these valuation figures, we also feel that FIVN is the superior value option right now.

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This article originally published on Zacks Investment Research (zacks.com).

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