Investors looking for stocks in the Retail - Home Furnishings sector might want to consider either Williams-Sonoma (WSM) or Restoration Hardware (RH). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Williams-Sonoma and Restoration Hardware are sporting Zacks Ranks of #1 (Strong Buy) and #3 (Hold), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that WSM is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.
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.
WSM currently has a forward P/E ratio of 13.41, while RH has a forward P/E of 29.94. We also note that WSM has a PEG ratio of 1.48. 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. RH currently has a PEG ratio of 1.71.
Another notable valuation metric for WSM is its P/B ratio of 8.15. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, RH has a P/B of 24.19.
These are just a few of the metrics contributing to WSM's Value grade of B and RH's Value grade of C.
WSM stands above RH thanks to its solid earnings outlook, and based on these valuation figures, we also feel that WSM is the superior value option right now.
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WilliamsSonoma, Inc. (WSM) : Free Stock Analysis Report
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