Investors with an interest in Retail - Discount Stores stocks have likely encountered both Big Lots (BIG - Free Report) and TJX (TJX - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, Big Lots has a Zacks Rank of #2 (Buy), while TJX has a Zacks Rank of #5 (Strong Sell). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that BIG has an improving earnings outlook. 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 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.
BIG currently has a forward P/E ratio of 6.69, while TJX has a forward P/E of 324.85. We also note that BIG has a PEG ratio of 1.48. 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. TJX currently has a PEG ratio of 30.94.
Another notable valuation metric for BIG is its P/B ratio of 1.53. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, TJX has a P/B of 14.77.
These are just a few of the metrics contributing to BIG's Value grade of A and TJX's Value grade of D.
BIG is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that BIG is likely the superior value option right now.