EGHT vs. ADYEY: Which Stock Should Value Investors Buy Now?

Investors interested in stocks from the Internet - Software sector have probably already heard of 8x8 (EGHT) and Adyen N.V. Unsponsored ADR (ADYEY). But which of these two stocks presents investors with the better value opportunity right now? 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.

8x8 and Adyen N.V. Unsponsored ADR are sporting Zacks Ranks of #2 (Buy) and #4 (Sell), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that EGHT is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.

Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether 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.

EGHT currently has a forward P/E ratio of 4.44, while ADYEY has a forward P/E of 21.38. We also note that EGHT has a PEG ratio of 0.63. 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. ADYEY currently has a PEG ratio of 1.26.

Another notable valuation metric for EGHT is its P/B ratio of 1.58. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, ADYEY has a P/B of 5.81.

These are just a few of the metrics contributing to EGHT's Value grade of A and ADYEY's Value grade of F.

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

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This article originally published on Zacks Investment Research (zacks.com).

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