Investors interested in Internet - Software stocks are likely familiar with StoneCo Ltd. (STNE) and SailPoint, Inc. (SAIL). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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.
Currently, StoneCo Ltd. has a Zacks Rank of #2 (Buy), while SailPoint, Inc. has a Zacks Rank of #3 (Hold). This means that STNE's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one piece of the puzzle for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its current share price levels.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
STNE currently has a forward P/E ratio of 4.76, while SAIL has a forward P/E of 47.21. We also note that STNE has a PEG ratio of 0.20. 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. SAIL currently has a PEG ratio of 1.70.
Another notable valuation metric for STNE is its P/B ratio of 1.17. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, SAIL has a P/B of 1.27.
Based on these metrics and many more, STNE holds a Value grade of A, while SAIL has a Value grade of D.
STNE has seen stronger estimate revision activity and sports more attractive valuation metrics than SAIL, so it seems like value investors will conclude that STNE is the superior option right now.
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This article originally published on Zacks Investment Research (zacks.com).