Investors looking for stocks in the Internet - Software sector might want to consider either Workday (WDAY) or Spotify (SPOT). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Right now, Workday is sporting a Zacks Rank of #2 (Buy), while Spotify has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that WDAY has an improving earnings outlook. 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.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
WDAY currently has a forward P/E ratio of 11.81, while SPOT has a forward P/E of 35.65. We also note that WDAY has a PEG ratio of 0.59. 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. SPOT currently has a PEG ratio of 1.28.
Another notable valuation metric for WDAY is its P/B ratio of 4.77. 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, SPOT has a P/B of 11.63.
These are just a few of the metrics contributing to WDAY's Value grade of B and SPOT's Value grade of D.
WDAY sticks out from SPOT in both our Zacks Rank and Style Scores models, so value investors will likely feel that WDAY is the better option right now.
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Workday, Inc. (WDAY): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).