Investors with an interest in Retail - Discount Stores stocks have likely encountered both Dollar General (DG) and Costco (COST). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Dollar General and Costco are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This means that DG's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one piece of the puzzle for value investors.
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.
DG currently has a forward P/E ratio of 21.43, while COST has a forward P/E of 40.08. We also note that DG has a PEG ratio of 1.76. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. COST currently has a PEG ratio of 4.37.
Another notable valuation metric for DG is its P/B ratio of 9.38. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, COST has a P/B of 11.32.
Based on these metrics and many more, DG holds a Value grade of B, while COST has a Value grade of C.
DG stands above COST thanks to its solid earnings outlook, and based on these valuation figures, we also feel that DG is the superior value option right now.
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Dollar General Corporation (DG) : Free Stock Analysis Report
Costco Wholesale Corporation (COST) : Free Stock Analysis Report
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