Investors interested in stocks from the Outsourcing sector have probably already heard of Barrett Business Services (BBSI) and Paychex (PAYX). But which of these two companies is the best option for those looking for undervalued stocks? Let's 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Both Barrett Business Services and Paychex have a Zacks Rank of # 2 (Buy) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. But this is only part of the picture 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.
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.
BBSI currently has a forward P/E ratio of 12.59, while PAYX has a forward P/E of 24.18. We also note that BBSI has a PEG ratio of 0.90. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. PAYX currently has a PEG ratio of 3.22.
Another notable valuation metric for BBSI is its P/B ratio of 3.47. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, PAYX has a P/B of 11.81.
These are just a few of the metrics contributing to BBSI's Value grade of A and PAYX's Value grade of C.
Both BBSI and PAYX are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that BBSI is the superior value option right now.
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