Investors looking for stocks in the Retail - Discount Stores sector might want to consider either Target (TGT - Free Report) or Dollar General (DG - 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.
Target and Dollar General are both sporting a Zacks Rank of # 2 (Buy) right now. 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 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.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
TGT currently has a forward P/E ratio of 17.34, while DG has a forward P/E of 23.81. We also note that TGT has a PEG ratio of 2.45. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. DG currently has a PEG ratio of 2.47.
Another notable valuation metric for TGT is its P/B ratio of 4.60. 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, DG has a P/B of 6.
These metrics, and several others, help TGT earn a Value grade of A, while DG has been given a Value grade of C.
Both TGT and DG are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that TGT is the superior value option right now.