Investors with an interest in Textile - Apparel stocks have likely encountered both Crocs (CROX) and Ralph Lauren (RL). 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.
Right now, Crocs is sporting a Zacks Rank of #2 (Buy), while Ralph Lauren has a Zacks Rank of #3 (Hold). This means that CROX's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is only part of the picture for value investors.
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.
CROX currently has a forward P/E ratio of 7.99, while RL has a forward P/E of 17.84. We also note that CROX has a PEG ratio of 0.93. 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. RL currently has a PEG ratio of 1.26.
Another notable valuation metric for CROX is its P/B ratio of 4. 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, RL has a P/B of 7.41.
Based on these metrics and many more, CROX holds a Value grade of B, while RL has a Value grade of C.
CROX has seen stronger estimate revision activity and sports more attractive valuation metrics than RL, so it seems like value investors will conclude that CROX is the superior option right now.
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Crocs, Inc. (CROX): Free Stock Analysis Report
Ralph Lauren Corporation (RL): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).