Investors interested in Retail - Apparel and Shoes stocks are likely familiar with Victoria's Secret (VSCO) and Industria de Diseno Textil SA (IDEXY). 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Victoria's Secret and Industria de Diseno Textil SA are sporting Zacks Ranks of #1 (Strong Buy) and #3 (Hold), respectively, right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that VSCO has 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.
VSCO currently has a forward P/E ratio of 15.23, while IDEXY has a forward P/E of 24.51. We also note that VSCO has a PEG ratio of 1.59. 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. IDEXY currently has a PEG ratio of 3.09.
Another notable valuation metric for VSCO is its P/B ratio of 4.66. 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, IDEXY has a P/B of 8.23.
These are just a few of the metrics contributing to VSCO's Value grade of B and IDEXY's Value grade of D.
VSCO has seen stronger estimate revision activity and sports more attractive valuation metrics than IDEXY, so it seems like value investors will conclude that VSCO is the superior option right now.
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Victoria's Secret & Co. (VSCO): Free Stock Analysis Report
Industria de Diseno Textil SA (IDEXY): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).