Investors interested in stocks from the Internet - Software sector have probably already heard of Block (XYZ) and Spotify (SPOT). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. 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, Block is sporting a Zacks Rank of #2 (Buy), while Spotify has a Zacks Rank of #4 (Sell). Investors should feel comfortable knowing that XYZ likely has seen a stronger improvement to its earnings outlook than SPOT has recently. But this is just one factor that value investors are interested in.
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 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.
XYZ currently has a forward P/E ratio of 19.62, while SPOT has a forward P/E of 32.32. We also note that XYZ has a PEG ratio of 0.61. 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. SPOT currently has a PEG ratio of 1.16.
Another notable valuation metric for XYZ is its P/B ratio of 2.1. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, SPOT has a P/B of 10.3.
These are just a few of the metrics contributing to XYZ's Value grade of B and SPOT's Value grade of D.
XYZ is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that XYZ is likely the superior value option right now.
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Block, Inc. (XYZ): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).