Investors interested in stocks from the Computer - Software sector have probably already heard of Intuit (INTU) and Microsoft (MSFT). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. 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, Intuit is sporting a Zacks Rank of #2 (Buy), while Microsoft has a Zacks Rank of #3 (Hold). This means that INTU's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one piece of the puzzle for value investors.
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 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.
INTU currently has a forward P/E ratio of 13.86, while MSFT has a forward P/E of 27.15. We also note that INTU has a PEG ratio of 0.93. 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. MSFT currently has a PEG ratio of 1.71.
Another notable valuation metric for INTU is its P/B ratio of 4.69. 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, MSFT has a P/B of 8.96.
These are just a few of the metrics contributing to INTU's Value grade of B and MSFT's Value grade of D.
INTU sticks out from MSFT in both our Zacks Rank and Style Scores models, so value investors will likely feel that INTU is the better option right now.
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Intuit Inc. (INTU): Free Stock Analysis Report
Microsoft Corporation (MSFT): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).