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Investors looking for stocks in the Business - Services sector might want to consider either WNS (Holdings) Limited (WNS) or SGS SA (SGSOY). 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
WNS (Holdings) Limited has a Zacks Rank of #2 (Buy), while SGS SA has a Zacks Rank of #3 (Hold) right now. Investors should feel comfortable knowing that WNS likely has seen a stronger improvement to its earnings outlook than SGSOY has recently. But this is just one factor that value investors are interested in.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies 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.
WNS currently has a forward P/E ratio of 14.47, while SGSOY has a forward P/E of 22.31. We also note that WNS has a PEG ratio of 2. 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. SGSOY currently has a PEG ratio of 2.59.
Another notable valuation metric for WNS is its P/B ratio of 3.93. 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, SGSOY has a P/B of 18.81.
Based on these metrics and many more, WNS holds a Value grade of B, while SGSOY has a Value grade of C.
WNS 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 WNS is likely the superior value option right now.
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This article originally published on Zacks Investment Research (zacks.com).