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LOW vs. HD: Which Stock Is the Better Value Option?

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Zacks Equity Research
·2 min read
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Investors interested in stocks from the Building Products - Retail sector have probably already heard of Lowe's (LOW) and Home Depot (HD). But which of these two companies is the best option for those looking for undervalued stocks? 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 Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.

Right now, both Lowe's and Home Depot are sporting a Zacks Rank of # 2 (Buy). Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. However, value investors will care about much more than just this.

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 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.

LOW currently has a forward P/E ratio of 19.93, while HD has a forward P/E of 24.02. We also note that LOW has a PEG ratio of 1.19. 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. HD currently has a PEG ratio of 2.16.

Another notable valuation metric for LOW is its P/B ratio of 31.25. 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, HD has a P/B of 198.21.

Based on these metrics and many more, LOW holds a Value grade of B, while HD has a Value grade of C.

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

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Lowes Companies, Inc. (LOW) : Free Stock Analysis Report
The Home Depot, Inc. (HD) : Free Stock Analysis Report
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