LZ vs. GWW: Which Stock Is the Better Value Option?

Investors looking for stocks in the Industrial Services sector might want to consider either LegalZoom (LZ) or W.W. Grainger (GWW). 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.

Right now, LegalZoom is sporting a Zacks Rank of #2 (Buy), while W.W. Grainger has a Zacks Rank of #3 (Hold). This means that LZ's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. However, value investors will care about much more than just this.

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 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.

LZ currently has a forward P/E ratio of 7.46, while GWW has a forward P/E of 27.78. We also note that LZ has a PEG ratio of 0.45. 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. GWW currently has a PEG ratio of 2.33.

Another notable valuation metric for LZ is its P/B ratio of 7.79. 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, GWW has a P/B of 13.33.

Based on these metrics and many more, LZ holds a Value grade of A, while GWW has a Value grade of C.

LZ sticks out from GWW in both our Zacks Rank and Style Scores models, so value investors will likely feel that LZ is the better option right now.

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

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