Investors with an interest in Building Products - Retail stocks have likely encountered both GMS Inc. (GMS - Free Report) and Lowe's (LOW - 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Currently, GMS Inc. has a Zacks Rank of #2 (Buy), while Lowe's has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that GMS has an improving earnings outlook. But this is only part of the picture for value investors.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their 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.
GMS currently has a forward P/E ratio of 6.64, while LOW has a forward P/E of 15.81. We also note that GMS has a PEG ratio of 0.95. 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. LOW currently has a PEG ratio of 1.14.
Another notable valuation metric for GMS is its P/B ratio of 1.25. 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, LOW has a P/B of 40.43.
These are just a few of the metrics contributing to GMS's Value grade of A and LOW's Value grade of C.
GMS is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that GMS is likely the superior value option right now.