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International Business Machines Corporation (IBM) - free report >>
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International Business Machines Corporation (IBM) - free report >>
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IBM vs. ZI: Which Stock Should Value Investors Buy Now?
Investors interested in stocks from the Computer - Integrated Systems sector have probably already heard of IBM (IBM - Free Report) and ZoomInfo (ZI - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
IBM has a Zacks Rank of #2 (Buy), while ZoomInfo has a Zacks Rank of #3 (Hold) right now. Investors should feel comfortable knowing that IBM likely has seen a stronger improvement to its earnings outlook than ZI has recently. However, value investors will care about much more than just this.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its 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.
IBM currently has a forward P/E ratio of 13.52, while ZI has a forward P/E of 103.08. We also note that IBM has a PEG ratio of 1.68. 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. ZI currently has a PEG ratio of 3.38.
Another notable valuation metric for IBM is its P/B ratio of 6.10. 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, ZI has a P/B of 21.25.
These are just a few of the metrics contributing to IBM's Value grade of A and ZI's Value grade of F.
IBM 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 IBM is likely the superior value option right now.