Investors interested in stocks from the Retail - Supermarkets sector have probably already heard of Kroger (KR - Free Report) and Walmart (WMT - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Kroger and Walmart are both sporting a Zacks Rank of # 2 (Buy) right now. Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. However, value investors will care about much more than just this.
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.
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.
KR currently has a forward P/E ratio of 11.31, while WMT has a forward P/E of 26. We also note that KR has a PEG ratio of 2.06. 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. WMT currently has a PEG ratio of 4.62.
Another notable valuation metric for KR is its P/B ratio of 2.61. 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, WMT has a P/B of 4.79.
These are just a few of the metrics contributing to KR's Value grade of A and WMT's Value grade of C.
Both KR and WMT are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that KR is the superior value option right now.