Investors with an interest in Retail - Discount Stores stocks have likely encountered both Dollar General (DG) and Ross Stores (ROST). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. 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, Dollar General is sporting a Zacks Rank of #2 (Buy), while Ross Stores has a Zacks Rank of #3 (Hold). This means that DG'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 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 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.
DG currently has a forward P/E ratio of 16.26, while ROST has a forward P/E of 26.20. We also note that DG has a PEG ratio of 2.10. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. ROST currently has a PEG ratio of 3.12.
Another notable valuation metric for DG is its P/B ratio of 2.74. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, ROST has a P/B of 9.2.
These metrics, and several others, help DG earn a Value grade of A, while ROST has been given a Value grade of C.
DG sticks out from ROST in both our Zacks Rank and Style Scores models, so value investors will likely feel that DG is the better option right now.
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Dollar General Corporation (DG): Free Stock Analysis Report Ross Stores, Inc. (ROST): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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