Investors looking for stocks in the Internet - Software sector might want to consider either VTEX (VTEX) or Adyen N.V. Unsponsored ADR (ADYEY). 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
VTEX has a Zacks Rank of #2 (Buy), while Adyen N.V. Unsponsored ADR has a Zacks Rank of #3 (Hold) right now. This means that VTEX's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst 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 Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
VTEX currently has a forward P/E ratio of 17.47, while ADYEY has a forward P/E of 22.64. We also note that VTEX has a PEG ratio of 0.45. 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. ADYEY currently has a PEG ratio of 1.34.
Another notable valuation metric for VTEX is its P/B ratio of 2.75. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, ADYEY has a P/B of 5.91.
Based on these metrics and many more, VTEX holds a Value grade of B, while ADYEY has a Value grade of D.
VTEX 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 VTEX is likely the superior value option right now.
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This article originally published on Zacks Investment Research (zacks.com).