Investors with an interest in Internet - Services stocks have likely encountered both Baidu Inc. (BIDU) and Shopify (SHOP). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, Baidu Inc. has a Zacks Rank of #1 (Strong Buy), while Shopify 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 BIDU has an improving earnings outlook. But this is just one piece of the puzzle for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its 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.
BIDU currently has a forward P/E ratio of 7.63, while SHOP has a forward P/E of 51.90. We also note that BIDU has a PEG ratio of 1.82. 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. SHOP currently has a PEG ratio of 2.26.
Another notable valuation metric for BIDU is its P/B ratio of 0.72. 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, SHOP has a P/B of 8.63.
These are just a few of the metrics contributing to BIDU's Value grade of A and SHOP's Value grade of F.
BIDU stands above SHOP thanks to its solid earnings outlook, and based on these valuation figures, we also feel that BIDU is the superior value option right now.
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This article originally published on Zacks Investment Research (zacks.com).
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