Investors looking for stocks in the Retail - Discount Stores sector might want to consider either Target (TGT) or Ross Stores (ROST). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great 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.
Target has a Zacks Rank of #2 (Buy), while Ross Stores has a Zacks Rank of #3 (Hold) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that TGT is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies 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.
TGT currently has a forward P/E ratio of 13.94, while ROST has a forward P/E of 22.49. We also note that TGT has a PEG ratio of 1.97. 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. ROST currently has a PEG ratio of 2.16.
Another notable valuation metric for TGT is its P/B ratio of 3.80. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, ROST has a P/B of 11.32.
These metrics, and several others, help TGT earn a Value grade of B, while ROST has been given a Value grade of C.
TGT is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that TGT is likely the superior value option right now.
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