TGT vs. COST: Which Stock Is the Better Value Option?
Investors interested in stocks from the Retail - Discount Stores sector have probably already heard of Target (TGT) and Costco (COST). But which of these two companies is the best option for those looking for undervalued stocks? 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, Target has a Zacks Rank of #2 (Buy), while Costco has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that TGT likely has seen a stronger improvement to its earnings outlook than COST has recently. But this is just one factor that value investors are interested in.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its 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.
TGT currently has a forward P/E ratio of 14.96, while COST has a forward P/E of 40.26. We also note that TGT has a PEG ratio of 2.46. 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. COST currently has a PEG ratio of 3.93.
Another notable valuation metric for TGT is its P/B ratio of 3.97. 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, COST has a P/B of 11.4.
These metrics, and several others, help TGT earn a Value grade of B, while COST has been given a Value grade of D.
TGT stands above COST thanks to its solid earnings outlook, and based on these valuation figures, we also feel that TGT is the superior value option right now.
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This article originally published on Zacks Investment Research (zacks.com).
