Investors interested in Retail - Discount Stores stocks are likely familiar with Big Lots (BIG) and TJX (TJX). 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Currently, Big Lots has a Zacks Rank of #2 (Buy), while TJX has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that BIG likely has seen a stronger improvement to its earnings outlook than TJX has recently. But this is just one piece of the puzzle for value investors.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their current share price levels.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
BIG currently has a forward P/E ratio of 6.13, while TJX has a forward P/E of 20.93. We also note that BIG has a PEG ratio of 0.79. 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. TJX currently has a PEG ratio of 1.97.
Another notable valuation metric for BIG is its P/B ratio of 1.27. 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, TJX has a P/B of 12.96.
Based on these metrics and many more, BIG holds a Value grade of B, while TJX has a Value grade of C.
BIG has seen stronger estimate revision activity and sports more attractive valuation metrics than TJX, so it seems like value investors will conclude that BIG is the superior option right now.