Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 4 stocks made the list for top value stocks in the Online Services industry. Those looking for value stocks to add to their portfolio may want to use this list as a starting point for further investment research.

Why Focus on Undervalued Online Services Stocks?

Value investors seek to buy stocks at a discount to their intrinsic value. Long-term returns show that such strategies are advantageous. Value stocks, as a group, tend to outperform growth stocks over extended periods of time. Typically, value investors perform financial analysis of numerous metrics, don’t follow the herd and are long-term investors.

AAII’s A+ Investor Value Grade is derived from a stock’s Value Score. The Value Score is the percentile rank of the average of the percentile ranks of the price-to-sales ratio, price-earnings ratio, enterprise-value-to-EBITDA (EV/EBITDA) ratio, shareholder yield, price-to-book-value ratio and price-to-free-cash-flow ratio. The score is variable, meaning it can consider all six ratios or, should any of the six ratios not be valid, the remaining ratios that are valid. To be assigned a Value Score, stocks must have a valid (non-null) ratio and corresponding ranking for at least two of the six valuation ratios.

What Goes Into AAII’s Value Grade?

Stock evaluation requires access to huge amounts of data as well as the knowledge and time to sift through it all, make sense of financial ratios, read income statements and analyze recent stock movement. AAII created A+ Investor, a robust data suite that condenses data research in an actionable and customizable way suitable for investors of all knowledge levels, to help investors with that task.

AAII’s proprietary stock grades come with A+ Investor. These offer intuitive A–F grades for more than just value. It is possible for a stock to appear cheap based on one valuation metric but appear expensive on another. It is also possible for one valuation ratio to be associated with outperforming stocks during certain periods of time but not others. Some stocks may even have null values for certain metrics like the price-earnings ratio or the price-to-book ratio but not others. An example of this would be a company with losses instead of profits or a negative book value because of heavy borrowing. Negative earnings or book value result in non-meaningful ratios that are left blank or null.

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4 Undervalued Online Services Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 4 undervalued stocks in the Online Services industry for Tuesday, April 09, 2024. Let’s take a closer look at their individual scores to see how they measure up against each other and the Online Services industry median.

The Value Grade is assigned based on how each stock’s composite valuation compares to all other stocks.

The process for assigning grades starts with each variable for a given stock. The percentile rankings for all valid ratios that a stock has are calculated. So, for instance, a stock could have a price-to-book ranking in the 43rd percentile, a price-earnings ranking in the 67th percentile, a price-to-sales ranking in the 23rd percentile, etc. Then, those rankings are averaged for each stock. (A minimum of two valid variables are required, though all six will be used if available.)

Once the average of the individual variables is calculated, that average is ranked against all stocks. Put another way, each stock’s composite valuation is compared to all other stocks. These ranks are then sorted into quintiles from the cheapest 20% (a grade of A) to the most expensive 20% (a grade of F).

As always, we recommend that you conduct proper due diligence and research before investing in any security. We also suggest that investors utilize numerous grades, not just value, when it comes to deciding whether a company is a good fit for their allocation needs.

Alibaba Group Holding Ltd - ADR’s Value Grade

Value Grade:

Alibaba Group Holding Ltd provides technology infrastructure and marketing platforms. The Company operates through seven segments. China Commerce segment includes China retail commerce businesses such as Taobao, Tmall and Freshippo, among others, and wholesale business. International Commerce segment includes international retail and wholesale commerce businesses such as Lazada and AliExpress. Local Consumer Services segment includes location-based businesses such as Ele.me, Amap, Fliggy and others. Cainiao segment includes domestic and international one-stop-shop logistics services and supply chain management solutions. Cloud segment provides public and hybrid cloud services like Alibaba Cloud and DingTalk for domestic and foreign enterprises. Digital Media and Entertainment segment includes Youku, Quark and Alibaba Pictures, other content and distribution platforms and online games business. Innovation Initiatives and Others segment include Damo Academy, Tmall Genie and others.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Alibaba Group Holding Ltd - ADR has a Value Score of 79, which is considered to be undervalued.

When you look at Alibaba Group Holding Ltd - ADR’s price-to-sales ratio at 1.41 compared to the industry median at 1.41, this company has a higher price relative to revenue compared to its peers. This could make Alibaba Group Holding Ltd - ADR’s stock fairly attractive for value investors.

Alibaba Group Holding Ltd - ADR’s price-earnings ratio is 13.36 compared to the industry median at 28.36. This means it has a lower share price relative to earnings compared to its peers. This could make Alibaba Group Holding Ltd - ADR more attractive for value investors.

Now, let’s assess Alibaba Group Holding Ltd - ADR’s EV/EBITDA ratio, also known as enterprise multiple. At 7.0, when compared to the industry median of 13.6, the company may be considered undervalued in relation to its peers. Value investors could use the enterprise multiple to identify stocks that are considered overvalued or undervalued relative to their industry.

Shareholder yield is the sum of a stock’s dividend yield (paid over previous 12 months minus special dividends) and the percentage of net share buybacks over the previous 12 months. Alibaba Group Holding Ltd - ADR’s shareholder yield is higher than its industry median ratio of (1.92%). Value investors may look for an attractive shareholder yield because it can be a powerful tool for identifying if the company has a good management team.

As one of the most common value metrics, the price-to-book ratio evaluates a company’s current market price relative to its book value. Alibaba Group Holding Ltd - ADR’s price-to-book ratio is lower than its industry median ratio of 1.92. This could make Alibaba Group Holding Ltd - ADR more attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Alibaba Group Holding Ltd - ADR’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. Alibaba Group Holding Ltd - ADR’s price-to-free-cash-flow ratio is lower than its industry median ratio of 27.19. This could make Alibaba Group Holding Ltd - ADR more attractive because the lower P/FCF ratio indicates that Alibaba Group Holding Ltd - ADR is undervalued. The P/FCF ratio metric can also be viewed over a long-term time frame to see if the company's cash flow to share price value is generally improving or worsening.

Enthusiast Gaming Holdings Inc’s Value Grade

Value Grade:

Enthusiast Gaming Holdings Inc. is a Canada-based gaming media and entertainment company. The Company’s principal business activities are comprised of media and content, entertainment and esports. The Company’s digital media platform includes video gaming related websites, YouTube channels and a library of casual games. The Company’s esports division, Luminosity Gaming Inc. (Luminosity), is a global esports franchise that consists of professional esports teams under ownership and management, including the Vancouver Titans Overwatch team and the Seattle Surge Call of Duty team. The Company’s entertainment business owns and operates a mobile gaming event in Europe, Pocket Gamer Connects. Its subsidiaries include GameCo Esports Canada Inc., GameCo eSports USA Inc., Luminosity Gaming Inc., Luminosity Gaming (USA) LLC, Enthusiast Gaming Properties Inc., Enthusiast Gaming Inc., Enthusiast Gaming Live Inc., Enthusiast Gaming Media (US) Inc., TeachMe, Inc., Outplayed, Inc. and others.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Enthusiast Gaming Holdings Inc has a Value Score of 92, which is considered to be undervalued.

Enthusiast Gaming Holdings Inc’s price-to-book ratio is higher than its peers. This could make Enthusiast Gaming Holdings Inc less attractive for value investors when compared to the industry median at 1.92.

You can read more about Enthusiast Gaming Holdings Inc’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

GigaMedia Ltd’s Value Grade

Value Grade:

Giga Media Ltd is a diversified provider of digital entertainment services in Taiwan, Hong Kong and Macau. The Digital Entertainment Services business operates a portfolio of digital entertainment products, primarily targeting digital entertainment service users across Asia. The Company operates FunTown, a digital entertainment portal. FunTown is focused on the high-growth mobile and browser-based casual games market in Asia. Through the FunTown Platform, the Company provides services such as Player Clubs, Tournaments, Avatars, Friends and Family Messenger and Online Chatting System, Social Networking, Customer Services, Mobile Platforms, and Customer Platform. Digital entertainment products include casual games such as mahjong, as well as role-playing and sports games.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

GigaMedia Ltd has a Value Score of 65, which is considered to be undervalued.

GigaMedia Ltd’s price-to-book ratio is higher than its peers. This could make GigaMedia Ltd less attractive for value investors when compared to the industry median at 1.92.

You can read more about GigaMedia Ltd’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Zhihu Inc - ADR’s Value Grade

Value Grade:

Zhihu Inc is a China-based holding company principally engaged in the operation of online question-and-answer (Q&A;) communities. The Company is principally engaged in the provision of advertising services, paid membership services, content monetization solutions and other services. The Company's online community provides a platform for users to find solutions, make decisions, find inspiration and have fun. The Company's online community is an online content community based on user-generated content (UGC). In addition, the Company's platform offers a range of contents such as daily life choices, esoteric knowledge content or unique experiences, and important life choices.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Zhihu Inc - ADR has a Value Score of 95, which is considered to be undervalued.

Zhihu Inc - ADR’s price-to-book ratio is higher than its peers. This could make Zhihu Inc - ADR less attractive for value investors when compared to the industry median at 1.92.

You can read more about Zhihu Inc - ADR’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Other Online Services Stock Grades

Value is just one of the five Stock Grades included in our A+ Investor service. AAII members can see the top-graded stocks—those with grades of A or B for value, growth, momentum, earnings estimate revisions and quality—on the A+ Stock Grades Screener.

Also, if you want full access to all of AAII’s premium services, you can subscribe to one convenient bundled plan called AAII Platinum where you can try out A+ Investor, AAII Dividend Investing, the Stock Superstars Report, Growth Investing and VMQ Stocks. With the other premium services, you can dive deep into additional metrics, portfolios, commentary and information about Online Services stocks as well as other industrys.

Choosing Which of the 4 Best Online Services Stocks Is Right for You

Choosing which value stocks to invest in will ultimately depend on your individual goals and allocation; however, comparing similar value stocks in the same industry can help you analyze which might be better investments for you in the long run. So, let’s take a look at the Value Grade for all of our stocks.

• Alibaba Group Holding Ltd - ADR stock has a Value Grade of B.
• Enthusiast Gaming Holdings Inc stock has a Value Grade of A.
• GigaMedia Ltd stock has a Value Grade of B.
• Zhihu Inc - ADR stock has a Value Grade of A.

Now that you have a bit more background about each of the 4 undervalued stocks in the Online Services industry as well as their overall grades, it’s time for you to conduct additional research to see if these could fit your portfolio needs based on your goals and risk tolerance. AAII can help you figure out both and identify which investments align with what works best for you.

We do so through a program of education that teaches you to invest for yourself and become an effective manager of your own wealth—no more relying on others for your financial independence. You can rely on AAII for timeless articles on financial planning and stock-picking, unbiased research and actionable analysis that makes you a better investor.

A+ Investor adds to that qualitative teaching by giving you a powerful data suite that helps you whittle down investment decisions to find stocks, exchange-traded funds (ETFs) or mutual funds that meet your needs.

Additional Resources About Online Services Stocks

Want to learn more about Online Services stocks to see if they could be the right investment for you? Check out some additional resources and articles to help you on your financial journey.

• 4 Undervalued Online Services Stocks for Tuesday, April 09
• 6 Undervalued Online Services Stocks for Monday, April 08
• Why Global-E Online Ltd’s (GLBE) Stock Is Up 7.54%
• 3 Undervalued Online Services Stocks for Friday, April 05

AAII Disclaimer

We make no representations or warranties that any investor will, or is likely to, achieve profits similar to those shown, because past, hypothetical or simulated performance is not necessarily indicative of future results. Before making an investment decision, you should consider your circumstances and whether the information on our content is applicable to your situation. This information was prepared in good faith and we accept no liability for any errors or omissions. The full disclaimer can be read here.