Investors interested in Shoes and Retail Apparel stocks are likely familiar with Skechers (SKX) and Nike (NKE). 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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Skechers has a Zacks Rank of #1 (Strong Buy), while Nike has a Zacks Rank of #4 (Sell) right now. Investors should feel comfortable knowing that SKX likely has seen a stronger improvement to its earnings outlook than NKE has recently. 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.
SKX currently has a forward P/E ratio of 14.02, while NKE has a forward P/E of 26.19. We also note that SKX has a PEG ratio of 0.50. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. NKE currently has a PEG ratio of 1.72.
Another notable valuation metric for SKX is its P/B ratio of 1.75. 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, NKE has a P/B of 10.63.
These are just a few of the metrics contributing to SKX's Value grade of B and NKE's Value grade of D.
SKX 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 SKX 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