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TPX or RH: Which Is the Better Value Stock Right Now?

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Investors looking for stocks in the Retail - Home Furnishings sector might want to consider either Tempur Sealy (TPX - Free Report) or Restoration Hardware (RH - 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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Right now, Tempur Sealy is sporting a Zacks Rank of #1 (Strong Buy), while Restoration Hardware has a Zacks Rank of #2 (Buy). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that TPX 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.

TPX currently has a forward P/E ratio of 15.81, while RH has a forward P/E of 28.24. We also note that TPX has a PEG ratio of 1.02. 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. RH currently has a PEG ratio of 2.46.

Another notable valuation metric for TPX is its P/B ratio of 17.80. 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, RH has a P/B of 334.29.

These metrics, and several others, help TPX earn a Value grade of B, while RH has been given a Value grade of C.

TPX stands above RH thanks to its solid earnings outlook, and based on these valuation figures, we also feel that TPX is the superior value option right now.


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