Investors looking for stocks in the Internet - Software sector might want to consider either DocuSign (DOCU) or F5 Networks (FFIV). But which of these two companies is the best option for those looking for undervalued stocks? 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, both DocuSign and F5 Networks are holding a Zacks Rank of #2 (Buy). Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. But this is only part of the picture for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its current share price levels.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
DOCU currently has a forward P/E ratio of 11.82, while FFIV has a forward P/E of 24.66. We also note that DOCU has a PEG ratio of 0.79. 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. FFIV currently has a PEG ratio of 7.25.
Another notable valuation metric for DOCU is its P/B ratio of 5.47. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, FFIV has a P/B of 6.28.
These are just a few of the metrics contributing to DOCU's Value grade of B and FFIV's Value grade of D.
Both DOCU and FFIV are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that DOCU is the superior value option right now.
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Docusign Inc. (DOCU): Free Stock Analysis Report
F5, Inc. (FFIV): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).