ULTA vs. TSCO: Which Stock Is the Better Value Option?

Investors interested in Retail - Miscellaneous stocks are likely familiar with Ulta Beauty (ULTA) and Tractor Supply (TSCO). But which of these two stocks presents investors with the better value opportunity right now? 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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.

Currently, Ulta Beauty has a Zacks Rank of #2 (Buy), while Tractor Supply has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that ULTA likely has seen a stronger improvement to its earnings outlook than TSCO has recently. But this is just one factor that value investors are interested in.

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 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.

ULTA currently has a forward P/E ratio of 21.27, while TSCO has a forward P/E of 26.70. We also note that ULTA has a PEG ratio of 2.85. 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. TSCO currently has a PEG ratio of 2.88.

Another notable valuation metric for ULTA is its P/B ratio of 8.91. 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, TSCO has a P/B of 11.59.

Based on these metrics and many more, ULTA holds a Value grade of B, while TSCO has a Value grade of C.

ULTA sticks out from TSCO in both our Zacks Rank and Style Scores models, so value investors will likely feel that ULTA is the better option right now.

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This article originally published on Zacks Investment Research (zacks.com).

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