Investors interested in Retail - Miscellaneous stocks are likely familiar with Petco Health & Wellness (WOOF) and Ulta Beauty (ULTA). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Petco Health & Wellness and Ulta Beauty are sporting Zacks Ranks of #1 (Strong 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 WOOF 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 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 Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
WOOF currently has a forward P/E ratio of 11.25, while ULTA has a forward P/E of 19.50. We also note that WOOF has a PEG ratio of 1.02. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. ULTA currently has a PEG ratio of 1.69.
Another notable valuation metric for WOOF is its P/B ratio of 0.72. 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, ULTA has a P/B of 9.12.
These are just a few of the metrics contributing to WOOF's Value grade of A and ULTA's Value grade of C.
WOOF has seen stronger estimate revision activity and sports more attractive valuation metrics than ULTA, so it seems like value investors will conclude that WOOF is the superior option right now.
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Petco Health and Wellness Company, Inc. (WOOF): Free Stock Analysis Report
Ulta Beauty Inc. (ULTA): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).