Investors looking for stocks in the Textile - Apparel sector might want to consider either Crocs (CROX) or Ralph Lauren (RL). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Both Crocs and Ralph Lauren have a Zacks Rank of #2 (Buy) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that both of these companies have improving earnings outlooks. But this is just one factor that value investors are interested in.
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.
CROX currently has a forward P/E ratio of 8.86, while RL has a forward P/E of 22.20. We also note that CROX has a PEG ratio of 1.25. 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. RL currently has a PEG ratio of 2.02.
Another notable valuation metric for CROX is its P/B ratio of 4.22. 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, RL has a P/B of 8.61.
These are just a few of the metrics contributing to CROX's Value grade of B and RL's Value grade of D.
Both CROX and RL are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that CROX is the superior value 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).