Investors with an interest in Textile - Apparel stocks have likely encountered both Ralph Lauren (RL) and Lululemon (LULU). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive 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.
Ralph Lauren has a Zacks Rank of #1 (Strong Buy), while Lululemon has 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 RL is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture 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.
RL currently has a forward P/E ratio of 15.23, while LULU has a forward P/E of 44.18. We also note that RL has a PEG ratio of 1.59. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. LULU currently has a PEG ratio of 2.34.
Another notable valuation metric for RL is its P/B ratio of 2.96. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, LULU has a P/B of 20.07.
These metrics, and several others, help RL earn a Value grade of B, while LULU has been given a Value grade of F.
RL stands above LULU thanks to its solid earnings outlook, and based on these valuation figures, we also feel that RL is the superior value option right now.