APPS vs. SPOT: Which Stock Is the Better Value Option?
Investors interested in stocks from the Internet - Software sector have probably already heard of Digital Turbine (APPS) and Spotify (SPOT). 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.
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.
Digital Turbine has a Zacks Rank of #2 (Buy), while Spotify has a Zacks Rank of #3 (Hold) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that APPS is likely seeing its earnings outlook improve to a greater extent. But this is just one piece of the puzzle for value investors.
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 Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
APPS currently has a forward P/E ratio of 12.99, while SPOT has a forward P/E of 34.16. We also note that APPS has a PEG ratio of 0.42. 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. SPOT currently has a PEG ratio of 1.45.
Another notable valuation metric for APPS is its P/B ratio of 7.09. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, SPOT has a P/B of 9.99.
Based on these metrics and many more, APPS holds a Value grade of B, while SPOT has a Value grade of D.
APPS has seen stronger estimate revision activity and sports more attractive valuation metrics than SPOT, so it seems like value investors will conclude that APPS is the superior option right now.
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This article originally published on Zacks Investment Research (zacks.com).
