It might not be obvious to the casual observer, but right now, today, Xerox Corporation (NYSE:XRX) stock offers one of the best values available in the IT industry. Why?
Xerox stock is cheap
When you stack up Xerox Corporation (NYSE:XRX) stock against two of its rivals in the international “business process outsourcing” industry — Accenture Plc (NYSE:ACN) and International Business Machines Corp. (NYSE:IBM) — it’s clear that Xerox is one of the cheapest options out there. Its 9.7 price-to-earnings ratio falls 32% below the P/E of IBM. It sells for a whopping 45% discount to the price of a share of Accenture Plc (NYSE:ACN).
And as is so often the case, with a low valuation comes a big boost in dividend yield. Xerox Corporation (NYSE:XRX) stock currently yields a tidy 2.6% dividend. That’s as compared with Accenture and IBM, both of which yield less than 2%.
Xerox: A cheap price for low expectations
Why aren’t investors paying up for Xerox Corporation (NYSE:XRX) stock (yet)? Part of the reason, one presumes, is because no one’s expecting the stock to do very much over the next five years. Of the three firms named, Xerox currently sports the lowest projected growth rate.
But while that sounds bad, if you turn this fact on its head, low expectations might actually turn out to be good news for investors in Xerox stock. After all, if no one’s expecting much growth out of the company, then Xerox Corporation (NYSE:XRX) has a low hurdle to clear.
It has to be easier for Xerox Corporation (NYSE:XRX) stock to exceed expectations for 6.7% earnings growth, after all, than it will be for Accenture to deliver better than 11.4% growth. (And with sales growth alone having averaged 5.4% annually over the past five years, there’s every reason to believe Xerox can at least hit its targets going forward).