Investors interested in Retail - Miscellaneous stocks are likely familiar with Dick's Sporting Goods (DKS) and KAR Auction Services (KAR). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Dick's Sporting Goods has a Zacks Rank of #2 (Buy), while KAR Auction Services has a Zacks Rank of #4 (Sell) right now. This means that DKS's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one factor that value investors are interested in.
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 Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
DKS currently has a forward P/E ratio of 10.23, while KAR has a forward P/E of 20.99. We also note that DKS has a PEG ratio of 1.82. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. KAR currently has a PEG ratio of 2.18.
Another notable valuation metric for DKS is its P/B ratio of 1.70. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, KAR has a P/B of 5.45.
Based on these metrics and many more, DKS holds a Value grade of B, while KAR has a Value grade of C.
DKS 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 DKS is likely the superior value option right now.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
DICK'S Sporting Goods, Inc. (DKS) : Free Stock Analysis Report
KAR Auction Services, Inc (KAR) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research