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 stocks presents investors with the better value opportunity right now? 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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Currently, Target has a Zacks Rank of #2 (Buy), while Ross Stores has a Zacks Rank of #3 (Hold). 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 are also interested in a number of tried-and-true valuation metrics that help show when 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.
TGT currently has a forward P/E ratio of 26.73, while ROST has a forward P/E of 100.37. We also note that TGT has a PEG ratio of 4.42. 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 10.04.
Another notable valuation metric for TGT is its P/B ratio of 6.03. 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, ROST has a P/B of 11.88.
Based on these metrics and many more, TGT holds a Value grade of B, while ROST has 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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