Investors looking for stocks in the Retail - Miscellaneous sector might want to consider either Office Depot (ODP - Free Report) or Tractor Supply (TSCO - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Currently, Office Depot has a Zacks Rank of #2 (Buy), while Tractor Supply has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that ODP is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.
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 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.
ODP currently has a forward P/E ratio of 6.88, while TSCO has a forward P/E of 19.71. We also note that ODP has a PEG ratio of 0.62. 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. TSCO currently has a PEG ratio of 1.74.
Another notable valuation metric for ODP is its P/B ratio of 0.68. 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, TSCO has a P/B of 7.37.
Based on these metrics and many more, ODP holds a Value grade of A, while TSCO has a 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.