TGT vs. ROST: Which Stock Is the Better Value Option?
Investors looking for stocks in the Retail - Discount Stores sector might want to consider either Target (TGT) or Ross Stores (ROST). But which of these two stocks presents investors with the better value opportunity right now? 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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, Target has a Zacks Rank of #2 (Buy), while Ross Stores has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that TGT is likely seeing its earnings outlook improve to a greater extent. But this is just one factor that value investors are interested in.
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.
The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
TGT currently has a forward P/E ratio of 15.68, while ROST has a forward P/E of 24.29. We also note that TGT has a PEG ratio of 2.33. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. ROST currently has a PEG ratio of 2.43.
Another notable valuation metric for TGT is its P/B ratio of 3.98. 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, ROST has a P/B of 11.73.
These metrics, and several others, help TGT earn a Value grade of A, while ROST has been given a Value grade of D.
TGT stands above ROST thanks to its solid earnings outlook, and based on these valuation figures, we also feel that TGT is the superior value option right now.
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