Investors interested in Internet - Software stocks are likely familiar with DocuSign (DOCU) and F5 Networks (FFIV). 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.
Both DocuSign and F5 Networks have a Zacks Rank of #2 (Buy) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that both of these companies have improving earnings outlooks. However, value investors will care about much more than just this.
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.
The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
DOCU currently has a forward P/E ratio of 11.06, while FFIV has a forward P/E of 23.09. We also note that DOCU has a PEG ratio of 0.74. 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. FFIV currently has a PEG ratio of 6.79.
Another notable valuation metric for DOCU is its P/B ratio of 5.12. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, FFIV has a P/B of 5.88.
Based on these metrics and many more, DOCU holds a Value grade of B, while FFIV has a Value grade of D.
Both DOCU and FFIV are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that DOCU is 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
Docusign Inc. (DOCU): Free Stock Analysis Report
F5, Inc. (FFIV): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).