Investors interested in Retail - Apparel and Shoes stocks are likely familiar with Gap (GPS) and Deckers (DECK). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
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.
Both Gap and Deckers have a Zacks Rank of # 1 (Strong Buy) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. But this is just one piece of the puzzle for value investors.
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.
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.
GPS currently has a forward P/E ratio of 18.13, while DECK has a forward P/E of 33.88. We also note that GPS has a PEG ratio of 1.51. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. DECK currently has a PEG ratio of 1.78.
Another notable valuation metric for GPS is its P/B ratio of 3.37. 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, DECK has a P/B of 11.10.
Based on these metrics and many more, GPS holds a Value grade of A, while DECK has a Value grade of D.
Both GPS and DECK are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that GPS is the superior value option right now.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
