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 stocks is more attractive to value investors? We'll need to take a closer look to find out.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Right now, Target is sporting a Zacks Rank of #2 (Buy), while Costco has a Zacks Rank of #3 (Hold). This means that TGT's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. However, value investors will care about much more than just this.
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.
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 16.12, while COST has a forward P/E of 32.89. We also note that TGT has a PEG ratio of 2.40. 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. COST currently has a PEG ratio of 2.76.
Another notable valuation metric for TGT is its P/B ratio of 4.13. 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, COST has a P/B of 8.10.
These are just a few of the metrics contributing to TGT's Value grade of A 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
