HSTM vs. SHOP: Which Stock Should Value Investors Buy Now?

Investors with an interest in Internet - Services stocks have likely encountered both HealthStream (HSTM) and Shopify (SHOP). But which of these two companies is the best option for those looking for undervalued stocks? 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 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.

HealthStream and Shopify are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that HSTM is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.

Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their 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.

HSTM currently has a forward P/E ratio of 34.79, while SHOP has a forward P/E of 116.86. We also note that HSTM has a PEG ratio of 2.90. 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. SHOP currently has a PEG ratio of 4.73.

Another notable valuation metric for HSTM is its P/B ratio of 2.02. 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, SHOP has a P/B of 17.63.

These are just a few of the metrics contributing to HSTM's Value grade of B and SHOP's Value grade of F.

HSTM 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 HSTM is likely the superior value option right now.

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

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