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VMW vs. SNPS: Which Stock Should Value Investors Buy Now?

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Investors looking for stocks in the Computer - Software sector might want to consider either VMware (VMW - Free Report) or Synopsys (SNPS - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.

We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.

VMware and Synopsys are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that VMW is likely seeing its earnings outlook improve to a greater extent. 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.

VMW currently has a forward P/E ratio of 16.77, while SNPS has a forward P/E of 47.12. We also note that VMW has a PEG ratio of 1.32. 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. SNPS currently has a PEG ratio of 2.95.

Another notable valuation metric for VMW is its P/B ratio of 5.24. 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, SNPS has a P/B of 10.53.

These metrics, and several others, help VMW earn a Value grade of B, while SNPS has been given a Value grade of D.

VMW has seen stronger estimate revision activity and sports more attractive valuation metrics than SNPS, so it seems like value investors will conclude that VMW is the superior option right now.


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