Investors with an interest in Retail - Apparel and Shoes stocks have likely encountered both Gap (GAP) and Deckers (DECK). 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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Currently, both Gap and Deckers are holding a Zacks Rank of #2 (Buy). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. However, value investors will care about much more than just this.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its current share price levels.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
GAP currently has a forward P/E ratio of 12.17, while DECK has a forward P/E of 16.20. We also note that GAP has a PEG ratio of 2.89. 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. DECK currently has a PEG ratio of 4.68.
Another notable valuation metric for GAP is its P/B ratio of 2.65. 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, DECK has a P/B of 6.13.
These are just a few of the metrics contributing to GAP's Value grade of A and DECK's Value grade of C.
Both GAP and DECK are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that GAP is the superior value option right now.
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The Gap, Inc. (GAP): Free Stock Analysis Report Deckers Outdoor Corporation (DECK): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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