Investors interested in stocks from the Outsourcing sector have probably already heard of Sykes Enterprises (SYKE) and Paychex (NASDAQ:PAYX). 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.
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 is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Right now, Sykes Enterprises is sporting a Zacks Rank of #2 (Buy), while Paychex has a Zacks Rank of #3 (Hold). This means that SYKE's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one piece of the puzzle for value investors.
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.
SYKE currently has a forward P/E ratio of 14.49, while PAYX has a forward P/E of 25.15. We also note that SYKE has a PEG ratio of 1.45. 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. PAYX currently has a PEG ratio of 3.07.
Another notable valuation metric for SYKE is its P/B ratio of 1.58. 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, PAYX has a P/B of 12.20.
These are just a few of the metrics contributing to SYKE's Value grade of A and PAYX's Value grade of C.
SYKE 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 SYKE is likely the superior value option right now.
Sykes Enterprises, Incorporated (SYKE): Free Stock Analysis Report
Paychex, Inc. (PAYX): Free Stock Analysis Report
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