Investors interested in stocks from the Retail - Apparel and Shoes sector have probably already heard of Foot Locker (FL - Free Report) and Stitch Fix (SFIX - 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Right now, both Foot Locker and Stitch Fix are sporting a Zacks Rank of # 2 (Buy). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. But this is only part of the picture for value investors.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when 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.
FL currently has a forward P/E ratio of 12.59, while SFIX has a forward P/E of 122.53. We also note that FL has a PEG ratio of 1.68. 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 5.45.
Another notable valuation metric for FL is its P/B ratio of 2.66. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, SFIX has a P/B of 5.79.
Based on these metrics and many more, FL holds a Value grade of A, while SFIX has a Value grade of D.
Both FL and SFIX are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that FL is the superior value option right now.