TGT or COST: Which Is the Better Value Stock Right Now?
Investors looking for stocks in the Retail - Discount Stores sector might want to consider either Target (TGT) or Costco (COST). But which of these two companies is the best option for those looking for undervalued stocks? 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Target has a Zacks Rank of #2 (Buy), while Costco has a Zacks Rank of #3 (Hold) right now. 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 22.85, while COST has a forward P/E of 39.38. We also note that TGT has a PEG ratio of 3.16. 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. COST currently has a PEG ratio of 4.70.
Another notable valuation metric for TGT is its P/B ratio of 6.53. 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 8.86.
These are just a few of the metrics contributing to TGT's Value grade of B and COST's Value grade of C.
TGT 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 TGT is likely the superior value option right now.
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Target Corporation (TGT): Free Stock Analysis Report
Costco Wholesale Corporation (COST): Free Stock Analysis Report
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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.