Investors looking for stocks in the Retail - Discount Stores sector might want to consider either Ross Stores (ROST) or Costco (COST). 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.
Ross Stores has a Zacks Rank of #2 (Buy), while Costco has a Zacks Rank of #3 (Hold) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that ROST has an improving earnings outlook. But this is just one piece of the puzzle 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.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
ROST currently has a forward P/E ratio of 20.83, while COST has a forward P/E of 34.15. We also note that ROST has a PEG ratio of 1.98. 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. COST currently has a PEG ratio of 3.69.
Another notable valuation metric for ROST is its P/B ratio of 8.26. 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, COST has a P/B of 9.54.
Based on these metrics and many more, ROST holds a Value grade of B, while COST has a Value grade of C.
ROST 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 ROST is likely the superior value option right now.
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