Investors interested in stocks from the Retail - Apparel and Shoes sector have probably already heard of Gap (GAP) and Deckers (DECK). 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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, both Gap and Deckers are holding a Zacks Rank of # 1 (Strong Buy). Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. But this is just one factor that value investors are interested in.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its 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.
GAP currently has a forward P/E ratio of 12.07, while DECK has a forward P/E of 35.53. We also note that GAP has a PEG ratio of 1.09. 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. DECK currently has a PEG ratio of 2.74.
Another notable valuation metric for GAP is its P/B ratio of 2.90. 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, DECK has a P/B of 13.28.
These metrics, and several others, help GAP earn a Value grade of A, while DECK has been given a Value grade of F.
Both GAP and DECK are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that GAP is the superior value option right now.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
