Investors with an interest in Retail - Discount Stores stocks have likely encountered both Target (TGT) and Costco (COST). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Right now, Target is sporting a Zacks Rank of #1 (Strong Buy), while Costco has a Zacks Rank of #2 (Buy). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that TGT has an improving earnings outlook. But this is just one piece of the puzzle 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.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
TGT currently has a forward P/E ratio of 18.34, while COST has a forward P/E of 35.21. We also note that TGT has a PEG ratio of 2.59. 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. COST currently has a PEG ratio of 4.14.
Another notable valuation metric for TGT is its P/B ratio of 4.87. 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, COST has a P/B of 8.54.
Based on these metrics and many more, TGT holds a Value grade of B, while COST has a Value grade of C.
TGT sticks out from COST in both our Zacks Rank and Style Scores models, so value investors will likely feel that TGT is the better option right now.
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Target Corporation (TGT) : Free Stock Analysis Report
Costco Wholesale Corporation (COST) : Free Stock Analysis Report
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