Investors interested in stocks from the Shoes and Retail Apparel sector have probably already heard of Carter's (CRI) and Nike (NKE). 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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Carter's has a Zacks Rank of #2 (Buy), while Nike has a Zacks Rank of #5 (Strong Sell) right now. This means that CRI'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 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.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
CRI currently has a forward P/E ratio of 9.72, while NKE has a forward P/E of 26.64. We also note that CRI has a PEG ratio of 3.59. 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. NKE currently has a PEG ratio of 3.79.
Another notable valuation metric for CRI is its P/B ratio of 1.14. 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, NKE has a P/B of 3.45.
These are just a few of the metrics contributing to CRI's Value grade of A and NKE's Value grade of D.
CRI stands above NKE thanks to its solid earnings outlook, and based on these valuation figures, we also feel that CRI is the superior value option right now.
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Carter's, Inc. (CRI): Free Stock Analysis Report
NIKE, Inc. (NKE): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).