Investors interested in stocks from the Textile - Apparel sector have probably already heard of Ralph Lauren (RL) and Lululemon (LULU). But which of these two stocks presents investors with the better value opportunity right now? 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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Currently, both Ralph Lauren and Lululemon are holding a Zacks Rank of # 2 (Buy). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. 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 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.
RL currently has a forward P/E ratio of 13.64, while LULU has a forward P/E of 37.73. We also note that RL has a PEG ratio of 1.42. 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. LULU currently has a PEG ratio of 2.
Another notable valuation metric for RL is its P/B ratio of 2.50. 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 17.18.
Based on these metrics and many more, RL holds a Value grade of A, while LULU has a Value grade of F.
Both RL and LULU are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that RL is the superior value option right now.