Investors looking for stocks in the Retail - Apparel and Shoes sector might want to consider either DSW or Stitch Fix (SFIX - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? 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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
DSW and Stitch Fix are sporting Zacks Ranks of #1 (Strong Buy) and #2 (Buy), respectively, right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that DSW has an improving earnings outlook. But this is just one piece of the puzzle for value investors.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies 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.
DSW currently has a forward P/E ratio of 17.90, while SFIX has a forward P/E of 245.49. We also note that DSW has a PEG ratio of 1.99. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. SFIX currently has a PEG ratio of 16.37.
Another notable valuation metric for DSW is its P/B ratio of 2.72. 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, SFIX has a P/B of 17.20.
These metrics, and several others, help DSW earn a Value grade of B, while SFIX has been given a Value grade of F.
DSW 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 DSW is likely the superior value option right now.