Investors interested in stocks from the Internet - Software and Services sector have probably already heard of NetEase (NTES) and 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 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.
Right now, NetEase is sporting a Zacks Rank of #1 (Strong Buy), while Tyler Technologies has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that NTES has an improving earnings outlook. But this is just one piece of the puzzle for value investors.
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 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.
NTES currently has a forward P/E ratio of 12.43, while TYL has a forward P/E of 22.39. We also note that NTES has a PEG ratio of 1.42. 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 1.49.
Another notable valuation metric for NTES is its P/B ratio of 3.06. 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, TYL has a P/B of 3.39.
These metrics, and several others, help NTES earn a Value grade of B, while TYL has been given a Value grade of D.
NTES 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 NTES is likely the superior value option right now.
Beyond Nvidia: AI's Second Wave Is Here
The AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. AI’s second wave is moving from infrastructure to implementation and these companies are at the forefront of this transition, positioned to become what Amazon and Google were to the internet era.
See Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
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).