ODP vs. FIVE: Which Stock Is the Better Value Option?
Investors looking for stocks in the Retail - Miscellaneous sector might want to consider either Office Depot (ODP) or Five Below (FIVE). 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 Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Currently, Office Depot has a Zacks Rank of #2 (Buy), while Five Below has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that ODP has an improving earnings outlook. But this is only part of the picture for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its 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.
ODP currently has a forward P/E ratio of 5.51, while FIVE has a forward P/E of 40.02. We also note that ODP has a PEG ratio of 0.50. 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. FIVE currently has a PEG ratio of 1.63.
Another notable valuation metric for ODP is its P/B ratio of 0.53. 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, FIVE has a P/B of 10.80.
Based on these metrics and many more, ODP holds a Value grade of A, while FIVE has a Value grade of D.
ODP stands above FIVE thanks to its solid earnings outlook, and based on these valuation figures, we also feel that ODP is the superior value option right now.
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