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HBI vs. LULU: Which Stock Is the Better Value Option?

Zacks Equity Research

Investors with an interest in Textile - Apparel stocks have likely encountered both HanesBrands (HBI) and Lululemon (LULU). 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.

HanesBrands and Lululemon are both sporting a Zacks Rank of # 2 (Buy) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that both of these companies have improving earnings outlooks. 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 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.

HBI currently has a forward P/E ratio of 8.94, while LULU has a forward P/E of 41.47. We also note that HBI has a PEG ratio of 2.23. 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. LULU currently has a PEG ratio of 2.28.

Another notable valuation metric for HBI is its P/B ratio of 4.65. 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, LULU has a P/B of 16.98.

These are just a few of the metrics contributing to HBI's Value grade of B and LULU's Value grade of D.

Both HBI and LULU are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that HBI is the superior value option right now.


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Hanesbrands Inc. (HBI) : Free Stock Analysis Report
 
lululemon athletica inc. (LULU) : Free Stock Analysis Report
 
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