Back to top

Image: Bigstock

TGT vs. COST: Which Stock Should Value Investors Buy Now?

Read MoreHide Full Article

Investors with an interest in Retail - Discount Stores stocks have likely encountered both Target (TGT - Free Report) and Costco (COST - Free Report) . But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.

There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.

Right now, Target is sporting a Zacks Rank of #1 (Strong Buy), while Costco has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that TGT is likely seeing its earnings outlook improve to a greater extent. But this is just one piece of the puzzle for value investors.

Value investors analyze a variety of traditional, tried-and-true metrics to help find companies 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.

TGT currently has a forward P/E ratio of 20.95, while COST has a forward P/E of 38.32. We also note that TGT has a PEG ratio of 2.90. 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. COST currently has a PEG ratio of 4.56.

Another notable valuation metric for TGT is its P/B ratio of 5.96. 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, COST has a P/B of 9.21.

Based on these metrics and many more, TGT holds a Value grade of B, while COST has a Value grade of C.

TGT sticks out from COST in both our Zacks Rank and Style Scores models, so value investors will likely feel that TGT is the better option right now.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Target Corporation (TGT) - free report >>

Costco Wholesale Corporation (COST) - free report >>

Published in