APPS or SPOT: Which Is the Better Value Stock Right Now?

Investors interested in Internet - Software stocks are likely familiar with Digital Turbine (APPS) and Spotify (SPOT). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.

Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. 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.

Digital Turbine and Spotify are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This means that APPS's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. 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 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.

APPS currently has a forward P/E ratio of 12.90, while SPOT has a forward P/E of 38.30. We also note that APPS has a PEG ratio of 0.41. 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. SPOT currently has a PEG ratio of 1.34.

Another notable valuation metric for APPS is its P/B ratio of 7.04. 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, SPOT has a P/B of 11.56.

These are just a few of the metrics contributing to APPS's Value grade of B and SPOT's Value grade of D.

APPS sticks out from SPOT in both our Zacks Rank and Style Scores models, so value investors will likely feel that APPS is the better option right now.

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

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