Investors looking for stocks in the Retail - Miscellaneous sector might want to consider either Petco Health & Wellness (WOOF) or Arhaus, Inc. (ARHS). But which of these two stocks presents investors with the better value opportunity right now? Let's 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 is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Right now, both Petco Health & Wellness and Arhaus, Inc. are sporting a Zacks Rank of #1 (Strong Buy). This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings outlook. But this is only part of the picture for value investors.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies 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.
WOOF currently has a forward P/E ratio of 9.33, while ARHS has a forward P/E of 18.18. We also note that WOOF has a PEG ratio of 0.85. 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. ARHS currently has a PEG ratio of 3.08.
Another notable valuation metric for WOOF is its P/B ratio of 0.6. 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, ARHS has a P/B of 3.33.
These metrics, and several others, help WOOF earn a Value grade of A, while ARHS has been given a Value grade of C.
Both WOOF and ARHS are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that WOOF is the superior value option right now.
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Petco Health and Wellness Company, Inc. (WOOF): Free Stock Analysis Report
Arhaus, Inc. (ARHS): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).