Investors with an interest in Retail - Supermarkets stocks have likely encountered both Tesco PLC (TSCDY) and Walmart (WMT). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
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, Tesco PLC is sporting a Zacks Rank of #2 (Buy), while Walmart has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that TSCDY is likely seeing its earnings outlook improve to a greater extent. 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.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
TSCDY currently has a forward P/E ratio of 16.30, while WMT has a forward P/E of 39.10. We also note that TSCDY has a PEG ratio of 1.35. 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. WMT currently has a PEG ratio of 4.80.
Another notable valuation metric for TSCDY is its P/B ratio of 2.76. 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, WMT has a P/B of 8.4.
These metrics, and several others, help TSCDY earn a Value grade of A, while WMT has been given a Value grade of C.
TSCDY 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 TSCDY is likely the superior value option right now.
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Tesco PLC (TSCDY): Free Stock Analysis Report Walmart Inc. (WMT): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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