Investors interested in stocks from the Retail - Apparel and Shoes sector have probably already heard of Genesco (GCO - Free Report) and Stitch Fix (SFIX - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? 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.
Currently, Genesco has a Zacks Rank of #1 (Strong Buy), while Stitch Fix has 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 GCO has an improving earnings 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 grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
GCO currently has a forward P/E ratio of 11.18, while SFIX has a forward P/E of 320. We also note that GCO has a PEG ratio of 2.24. 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 21.33.
Another notable valuation metric for GCO is its P/B ratio of 1.22. 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, SFIX has a P/B of 5.84.
Based on these metrics and many more, GCO holds a Value grade of A, while SFIX has a Value grade of D.
GCO has seen stronger estimate revision activity and sports more attractive valuation metrics than SFIX, so it seems like value investors will conclude that GCO is the superior option right now.