Investors interested in stocks from the Retail - Discount Stores sector have probably already heard of Target (TGT) and TJX (TJX). 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 Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Right now, Target is sporting a Zacks Rank of #1 (Strong Buy), while TJX has a Zacks Rank of #2 (Buy). This means that TGT's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one factor that value investors are interested in.
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 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.
TGT currently has a forward P/E ratio of 16.13, while TJX has a forward P/E of 29.13. We also note that TGT has a PEG ratio of 2.63. 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. TJX currently has a PEG ratio of 3.26.
Another notable valuation metric for TGT is its P/B ratio of 3.73. 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, TJX has a P/B of 15.98.
These are just a few of the metrics contributing to TGT's Value grade of B and TJX's Value grade of D.
TGT sticks out from TJX in both our Zacks Rank and Style Scores models, so value investors will likely feel that TGT is the better option right now.
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Target Corporation (TGT): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).