Investors interested in Internet - Software stocks are likely familiar with Reddit Inc. (RDDT) and Spotify (SPOT). 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.
Right now, Reddit Inc. is sporting a Zacks Rank of #2 (Buy), while Spotify has a Zacks Rank of #4 (Sell). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that RDDT is likely seeing its earnings outlook improve to a greater extent. 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.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
RDDT currently has a forward P/E ratio of 17.38, while SPOT has a forward P/E of 43.44. We also note that RDDT has a PEG ratio of 0.42. 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. SPOT currently has a PEG ratio of 1.84.
Another notable valuation metric for RDDT is its P/B ratio of 4.93. 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 12.14.
Based on these metrics and many more, RDDT holds a Value grade of B, while SPOT has a Value grade of D.
RDDT sticks out from SPOT in both our Zacks Rank and Style Scores models, so value investors will likely feel that RDDT is the better option right now.
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Reddit Inc. (RDDT): Free Stock Analysis Report
Spotify Technology (SPOT): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).