DG or ROST: Which Is the Better Value Stock Right Now?

Investors interested in Retail - Discount Stores stocks are likely familiar with Dollar General (DG) and Ross Stores (ROST). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.

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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.

Currently, Dollar General has a Zacks Rank of #1 (Strong Buy), while Ross Stores has a Zacks Rank of #2 (Buy). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that DG is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.

Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its current share price levels.

The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.

DG currently has a forward P/E ratio of 17.52, while ROST has a forward P/E of 26.98. We also note that DG has a PEG ratio of 1.84. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. ROST currently has a PEG ratio of 1.85.

Another notable valuation metric for DG is its P/B ratio of 3.3. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, ROST has a P/B of 11.21.

These are just a few of the metrics contributing to DG's Value grade of B and ROST's Value grade of D.

DG stands above ROST thanks to its solid earnings outlook, and based on these valuation figures, we also feel that DG is the superior value option right now.

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This article originally published on Zacks Investment Research (zacks.com).

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