PAYC vs. PLTR: Which Stock Should Value Investors Buy Now?

Investors with an interest in Internet - Software stocks have likely encountered both Paycom Software (PAYC) and Palantir Technologies Inc. (PLTR). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to 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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Both Paycom Software and Palantir Technologies Inc. have a Zacks Rank of #2 (Buy) right now. This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings outlook. But this is just one factor that value investors are interested in.

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.

PAYC currently has a forward P/E ratio of 13.00, while PLTR has a forward P/E of 87.10. We also note that PAYC has a PEG ratio of 1.03. 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. PLTR currently has a PEG ratio of 1.63.

Another notable valuation metric for PAYC is its P/B ratio of 8.19. 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, PLTR has a P/B of 36.15.

These are just a few of the metrics contributing to PAYC's Value grade of B and PLTR's Value grade of F.

Both PAYC and PLTR are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that PAYC is the superior value option right now.

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This article originally published on Zacks Investment Research (zacks.com).

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