Investors interested in stocks from the Internet - Services sector have probably already heard of HealthStream (HSTM) and Sify Technologies Limited (SIFY). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. 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 Sify Technologies Limited are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This means that HSTM'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 analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their current share price levels.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
HSTM currently has a forward P/E ratio of 31.01, while SIFY has a forward P/E of 823.50. We also note that HSTM has a PEG ratio of 2.58. 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. SIFY currently has a PEG ratio of 41.17.
Another notable valuation metric for HSTM is its P/B ratio of 1.9. 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, SIFY has a P/B of 5.42.
These metrics, and several others, help HSTM earn a Value grade of B, while SIFY has been given a Value grade of C.
HSTM stands above SIFY thanks to its solid earnings outlook, and based on these valuation figures, we also feel that HSTM is the superior value option right now.
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HealthStream, Inc. (HSTM): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).