Investors interested in Retail - Discount Stores stocks are likely familiar with Dollar General (DG - Free Report) and TJX (TJX - 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.
Right now, Dollar General is sporting a Zacks Rank of #2 (Buy), while TJX has a Zacks Rank of #5 (Strong Sell). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that DG is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.
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 highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
DG currently has a forward P/E ratio of 24.40, while TJX has a forward P/E of 32.05. We also note that DG has a PEG ratio of 2. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. TJX currently has a PEG ratio of 3.05.
Another notable valuation metric for DG is its P/B ratio of 6.84. 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 9.54.
These are just a few of the metrics contributing to DG's Value grade of B and TJX's Value grade of C.
DG stands above TJX thanks to its solid earnings outlook, and based on these valuation figures, we also feel that DG is the superior value option right now.