Investors with an interest in Retail - Miscellaneous stocks have likely encountered both Office Depot (ODP - Free Report) and Tractor Supply (TSCO - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? 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 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, Office Depot is sporting a Zacks Rank of #2 (Buy), while Tractor Supply has a Zacks Rank of #3 (Hold). This means that ODP's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is only part of the picture for value investors.
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.
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.
ODP currently has a forward P/E ratio of 8.88, while TSCO has a forward P/E of 18.99. We also note that ODP has a PEG ratio of 0.51. 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. TSCO currently has a PEG ratio of 1.43.
Another notable valuation metric for ODP is its P/B ratio of 0.73. 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, TSCO has a P/B of 7.32.
These are just a few of the metrics contributing to ODP's Value grade of A and TSCO's Value grade of C.
ODP stands above TSCO thanks to its solid earnings outlook, and based on these valuation figures, we also feel that ODP is the superior value option right now.