Investors looking for stocks in the Retail - Discount Stores sector might want to consider either Dollar General (DG) or Ross Stores (ROST). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Right now, Dollar General is sporting a Zacks Rank of #1 (Strong Buy), while Ross Stores has a Zacks Rank of #2 (Buy). Investors should feel comfortable knowing that DG likely has seen a stronger improvement to its earnings outlook than ROST has recently. 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.
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.
DG currently has a forward P/E ratio of 22.77, while ROST has a forward P/E of 28.76. We also note that DG has a PEG ratio of 2.68. 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. ROST currently has a PEG ratio of 3.55.
Another notable valuation metric for DG is its P/B ratio of 3.97. 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, ROST has a P/B of 10.22.
Based on these metrics and many more, DG holds a Value grade of B, while ROST has a Value grade of D.
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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