DG or ROST: Which Is the Better Value Stock Right Now?
Investors looking for stocks in the Retail - Discount Stores sector might want to consider either Dollar General (DG) or Ross Stores (ROST). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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 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.
Dollar General and Ross Stores are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. 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. But this is just one factor that value investors are interested in.
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.
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.
DG currently has a forward P/E ratio of 16.61, while ROST has a forward P/E of 25.02. We also note that DG has a PEG ratio of 2.14. 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. ROST currently has a PEG ratio of 2.97.
Another notable valuation metric for DG is its P/B ratio of 2.8. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, ROST has a P/B of 8.78.
Based on these metrics and many more, DG holds a Value grade of A, while ROST has a Value grade of C.
DG stands above ROST thanks to its solid earnings outlook, and based on these valuation figures, we also feel that DG is the superior value option right now.
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Ross Stores, Inc. (ROST) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
