Investors interested in Computer - Software stocks are likely familiar with Progress Software (PRGS) and Cadence Design Systems (CDNS). 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.
Progress Software and Cadence Design Systems are sporting Zacks Ranks of #1 (Strong Buy) and #2 (Buy), respectively, right now. Investors should feel comfortable knowing that PRGS likely has seen a stronger improvement to its earnings outlook than CDNS has recently. However, value investors will care about much more than just this.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its 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.
PRGS currently has a forward P/E ratio of 7.09, while CDNS has a forward P/E of 40.06. We also note that PRGS 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. CDNS currently has a PEG ratio of 2.75.
Another notable valuation metric for PRGS is its P/B ratio of 3.37. 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, CDNS has a P/B of 13.09.
Based on these metrics and many more, PRGS holds a Value grade of B, while CDNS has a Value grade of F.
PRGS sticks out from CDNS in both our Zacks Rank and Style Scores models, so value investors will likely feel that PRGS is the better option right now.
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Progress Software Corporation (PRGS): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).