Investors with an interest in Retail - Discount Stores stocks have likely encountered both Target (TGT - Free Report) and Costco (COST - 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 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.
Target has a Zacks Rank of #2 (Buy), while Costco has a Zacks Rank of #3 (Hold) right now. This means that TGT's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one piece of the puzzle for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its 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 19.55, while COST has a forward P/E of 33.99. We also note that TGT has a PEG ratio of 2.59. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. COST currently has a PEG ratio of 4.19.
Another notable valuation metric for TGT is its P/B ratio of 5.48. 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, COST has a P/B of 7.94.
These metrics, and several others, help TGT earn a Value grade of B, while COST has been given a Value grade of C.
TGT has seen stronger estimate revision activity and sports more attractive valuation metrics than COST, so it seems like value investors will conclude that TGT is the superior option right now.