Investors interested in Retail - Discount Stores stocks are likely familiar with Target (TGT) and TJX (TJX). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to 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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Right now, both Target and TJX are sporting a Zacks Rank of #2 (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 also tend to look at a number of traditional, tried-and-true figures to help them find stocks 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.
TGT currently has a forward P/E ratio of 17.47, while TJX has a forward P/E of 31.25. We also note that TGT has a PEG ratio of 2.85. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. TJX currently has a PEG ratio of 3.50.
Another notable valuation metric for TGT is its P/B ratio of 4.04. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, TJX has a P/B of 17.16.
Based on these metrics and many more, TGT holds a Value grade of A, while TJX has a Value grade of D.
Both TGT and TJX are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that TGT is the superior value option right now.
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This article originally published on Zacks Investment Research (zacks.com).