Investors interested in stocks from the Computer - Software sector have probably already heard of Progress Software (PRGS) and Cadence Design Systems (CDNS). 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.
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 is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Currently, both Progress Software and Cadence Design Systems are holding 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. But this is just one piece of the puzzle for value investors.
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.
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.
PRGS currently has a forward P/E ratio of 6.48, while CDNS has a forward P/E of 47.58. We also note that PRGS has a PEG ratio of 1.30. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. CDNS currently has a PEG ratio of 3.51.
Another notable valuation metric for PRGS is its P/B ratio of 3.17. 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, CDNS has a P/B of 15.88.
These metrics, and several others, help PRGS earn a Value grade of A, while CDNS has been given a Value grade of F.
Both PRGS and CDNS are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that PRGS is the superior value option right now.
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Progress Software Corporation (PRGS): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).