Investors with an interest in Textile - Apparel stocks have likely encountered both Guess (GES - Free Report) and Lululemon (LULU - Free Report) . But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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 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, both Guess and Lululemon are sporting a Zacks Rank of # 2 (Buy). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that both of these companies have improving earnings outlooks. 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 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.
GES currently has a forward P/E ratio of 21.56, while LULU has a forward P/E of 36.12. We also note that GES has a PEG ratio of 1.23. 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. LULU currently has a PEG ratio of 1.88.
Another notable valuation metric for GES is its P/B ratio of 2.22. 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, LULU has a P/B of 12.99.
Based on these metrics and many more, GES holds a Value grade of A, while LULU has a Value grade of D.
Both GES and LULU are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that GES is the superior value option right now.