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ODP vs. FIVE: Which Stock Should Value Investors Buy Now?

Zacks Equity Research

Investors with an interest in Retail - Miscellaneous stocks have likely encountered both Office Depot (ODP) and Five Below (FIVE). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.

Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Currently, Office Depot has a Zacks Rank of #2 (Buy), while Five Below has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that ODP has an improving earnings outlook. But this is just one factor that value investors are interested in.

Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks 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.

ODP currently has a forward P/E ratio of 4.55, while FIVE has a forward P/E of 42.72. We also note that ODP has a PEG ratio of 0.41. 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. FIVE currently has a PEG ratio of 1.68.

Another notable valuation metric for ODP is its P/B ratio of 0.44. 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, FIVE has a P/B of 11.53.

These are just a few of the metrics contributing to ODP's Value grade of A and FIVE's Value grade of D.

ODP stands above FIVE thanks to its solid earnings outlook, and based on these valuation figures, we also feel that ODP is the superior value option right now.


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