Investors interested in stocks from the Outsourcing sector have probably already heard of Barrett Business Services (BBSI) and Automatic Data Processing (ADP). But which of these two stocks presents investors with the better value opportunity right now? Let’s take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, Barrett Business Services has a Zacks Rank of #2 (Buy), while Automatic Data Processing has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that BBSI likely has seen a stronger improvement to its earnings outlook than ADP has recently. 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.
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.
BBSI currently has a forward P/E ratio of 12.70, while ADP has a forward P/E of 27.82. We also note that BBSI has a PEG ratio of 0.85. 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. ADP currently has a PEG ratio of 2.32.
Another notable valuation metric for BBSI is its P/B ratio of 3.04. 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, ADP has a P/B of 21.53.
Based on these metrics and many more, BBSI holds a Value grade of B, while ADP has a Value grade of C.
BBSI sticks out from ADP in both our Zacks Rank and Style Scores models, so value investors will likely feel that BBSI is the better option right now.
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