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Investors interested in Technology Services stocks are likely familiar with Smiths Group PLC (SMGZY) and AppLovin (APP). 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Right now, Smiths Group PLC is sporting a Zacks Rank of #2 (Buy), while AppLovin 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 SMGZY has an improving earnings outlook. But this is only part of the picture 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 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.
SMGZY currently has a forward P/E ratio of 15.84, while APP has a forward P/E of 35.65. We also note that SMGZY has a PEG ratio of 1.39. 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. APP currently has a PEG ratio of 1.78.
Another notable valuation metric for SMGZY is its P/B ratio of 2.93. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, APP has a P/B of 74.33.
Based on these metrics and many more, SMGZY holds a Value grade of B, while APP has a Value grade of F.
SMGZY 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 SMGZY is likely the superior value option right now.
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Smiths Group PLC (SMGZY) : Free Stock Analysis Report
AppLovin Corporation (APP) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).