Back to top

Image: Bigstock

DG or ROST: Which Is the Better Value Stock Right Now?

Read MoreHide Full Article

Investors interested in stocks from the Retail - Discount Stores sector have probably already heard of Dollar General (DG - Free Report) and Ross Stores (ROST - Free Report) . But which of these two stocks offers value investors a better bang for their buck right now? We'll need to 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.

Both Dollar General and Ross Stores have a Zacks Rank of #1 (Strong 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 try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its current share price levels.

Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.

DG currently has a forward P/E ratio of 15.53, while ROST has a forward P/E of 25.56. We also note that DG has a PEG ratio of 1.63. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. ROST currently has a PEG ratio of 1.75.

Another notable valuation metric for DG is its P/B ratio of 2.93. 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, ROST has a P/B of 10.62.

These are just a few of the metrics contributing to DG's Value grade of B and ROST's Value grade of D.

Both DG and ROST are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that DG is the superior value option right now.

Published in