Investors with an interest in Retail - Apparel and Shoes stocks have likely encountered both Gap (GAP) and On Holding (ONON). But which of these two stocks presents investors with the better value opportunity right now? 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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Currently, Gap has a Zacks Rank of #1 (Strong Buy), while On Holding has a Zacks Rank of #2 (Buy). This means that GAP's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is only part of the picture 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.
GAP currently has a forward P/E ratio of 7.85, while ONON has a forward P/E of 36.19. We also note that GAP has a PEG ratio of 1.25. 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. ONON currently has a PEG ratio of 1.73.
Another notable valuation metric for GAP is its P/B ratio of 2.15. 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, ONON has a P/B of 17.33.
These are just a few of the metrics contributing to GAP's Value grade of A and ONON's Value grade of F.
GAP stands above ONON thanks to its solid earnings outlook, and based on these valuation figures, we also feel that GAP is the superior value option right now.
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The Gap, Inc. (GAP): Free Stock Analysis Report On Holding AG (ONON): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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