Investors interested in Computer - Software stocks are likely familiar with Oracle (ORCL) and Microsoft (MSFT). 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Right now, Oracle is sporting a Zacks Rank of #2 (Buy), while Microsoft has a Zacks Rank of #3 (Hold). This means that ORCL's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is only part of the picture 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.
ORCL currently has a forward P/E ratio of 17.97, while MSFT has a forward P/E of 25.77. We also note that ORCL has a PEG ratio of 0.85. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. MSFT currently has a PEG ratio of 1.62.
Another notable valuation metric for ORCL is its P/B ratio of 7.03. 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, MSFT has a P/B of 8.48.
Based on these metrics and many more, ORCL holds a Value grade of B, while MSFT has a Value grade of D.
ORCL stands above MSFT thanks to its solid earnings outlook, and based on these valuation figures, we also feel that ORCL is the superior value option right now.
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Oracle Corporation (ORCL): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).