Investors interested in stocks from the Retail - Apparel and Shoes sector have probably already heard of Urban Outfitters (URBN) and Ermenegildo Zegna N.V. (ZGN). 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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Urban Outfitters and Ermenegildo Zegna N.V. are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that URBN is likely seeing its earnings outlook improve to a greater extent. But this is just one piece of the puzzle 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.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
URBN currently has a forward P/E ratio of 11.92, while ZGN has a forward P/E of 27.74. We also note that URBN has a PEG ratio of 1.34. 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. ZGN currently has a PEG ratio of 4.06.
Another notable valuation metric for URBN is its P/B ratio of 2.22. 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, ZGN has a P/B of 4.32.
Based on these metrics and many more, URBN holds a Value grade of A, while ZGN has a Value grade of D.
URBN has seen stronger estimate revision activity and sports more attractive valuation metrics than ZGN, so it seems like value investors will conclude that URBN is the superior option right now.
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Urban Outfitters, Inc. (URBN): Free Stock Analysis Report
Ermenegildo Zegna N.V. (ZGN): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).