Investors interested in Retail - Apparel and Shoes stocks are likely familiar with Gap (GAP) and Deckers (DECK). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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, Gap has a Zacks Rank of #2 (Buy), while Deckers has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that GAP has an improving earnings outlook. 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.
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 13.06, while DECK has a forward P/E of 17.84. We also note that GAP has a PEG ratio of 3.10. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. DECK currently has a PEG ratio of 5.16.
Another notable valuation metric for GAP is its P/B ratio of 2.85. 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 6.67.
These metrics, and several others, help GAP earn a Value grade of A, while DECK has been given a Value grade of D.
GAP stands above DECK 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 Deckers Outdoor Corporation (DECK): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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