Investors looking for stocks in the Internet - Software and Services sector might want to consider either NetEase (NTES) or Tyler Technologies (TYL). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, NetEase has a Zacks Rank of #1 (Strong Buy), while Tyler Technologies has a Zacks Rank of #3 (Hold). This means that NTES's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. 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.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
NTES currently has a forward P/E ratio of 12.54, while TYL has a forward P/E of 24.06. We also note that NTES has a PEG ratio of 1.43. 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. TYL currently has a PEG ratio of 1.60.
Another notable valuation metric for NTES is its P/B ratio of 3.09. 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, TYL has a P/B of 3.6.
These are just a few of the metrics contributing to NTES's Value grade of B and TYL's Value grade of D.
NTES has seen stronger estimate revision activity and sports more attractive valuation metrics than TYL, so it seems like value investors will conclude that NTES is the superior option right now.
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NetEase, Inc. (NTES): Free Stock Analysis Report
Tyler Technologies, Inc. (TYL): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).