Investors interested in stocks from the Retail - Miscellaneous sector have probably already heard of Office Depot (ODP) and Tractor Supply (TSCO). But which of these two stocks presents investors with the better value opportunity right now? 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 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.
Office Depot and Tractor Supply are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This means that ODP'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 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 5.10, while TSCO has a forward P/E of 23.64. We also note that ODP has a PEG ratio of 0.75. 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. TSCO currently has a PEG ratio of 2.06.
Another notable valuation metric for ODP is its P/B ratio of 0.56. 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, TSCO has a P/B of 9.55.
These metrics, and several others, help ODP earn a Value grade of A, while TSCO has been given a Value grade of C.
ODP 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 ODP is likely the superior value option right now.
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Office Depot, Inc. (ODP) : Free Stock Analysis Report
Tractor Supply Company (TSCO) : Free Stock Analysis Report
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