Investors interested in stocks from the Computer- Storage Devices sector have probably already heard of Teradata (TDC) and NetApp (NTAP). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Teradata and NetApp are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. Investors should feel comfortable knowing that TDC likely has seen a stronger improvement to its earnings outlook than NTAP has recently. But this is only part of the picture 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.
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.
TDC currently has a forward P/E ratio of 13.77, while NTAP has a forward P/E of 18.68. We also note that TDC has a PEG ratio of 1.80. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. NTAP currently has a PEG ratio of 2.44.
Another notable valuation metric for TDC is its P/B ratio of 6.16. 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, NTAP has a P/B of 24.04.
These are just a few of the metrics contributing to TDC's Value grade of B and NTAP's Value grade of D.
TDC is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that TDC is likely the superior value option right now.
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Teradata Corporation (TDC): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).