Investors interested in stocks from the Outsourcing sector have probably already heard of Adecco SA (AHEXY) and Automatic Data Processing (ADP). But which of these two companies is the best option for those looking for undervalued stocks? 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Right now, Adecco SA is sporting a Zacks Rank of #2 (Buy), while Automatic Data Processing has a Zacks Rank of #3 (Hold). This means that AHEXY's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one factor that value investors are interested in.
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.
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.
AHEXY currently has a forward P/E ratio of 13.27, while ADP has a forward P/E of 26.29. We also note that AHEXY has a PEG ratio of 1.74. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. ADP currently has a PEG ratio of 2.19.
Another notable valuation metric for AHEXY is its P/B ratio of 1.51. 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, ADP has a P/B of 29.66.
Based on these metrics and many more, AHEXY holds a Value grade of A, while ADP has a Value grade of C.
AHEXY 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 AHEXY is likely the superior value option right now.
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