Investors with an interest in Retail - Discount Stores stocks have likely encountered both Dollar General (DG) and Costco (COST). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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.
Right now, both Dollar General and Costco are sporting a Zacks Rank of # 2 (Buy). This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings outlook. However, value investors will care about much more than just this.
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 21.97, while COST has a forward P/E of 41.34. We also note that DG has a PEG ratio of 1.81. 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. COST currently has a PEG ratio of 4.50.
Another notable valuation metric for DG is its P/B ratio of 9.64. 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, COST has a P/B of 11.68.
These metrics, and several others, help DG earn a Value grade of B, while COST has been given a Value grade of C.
Both DG and COST are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that DG is the superior value option right now.
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Dollar General Corporation (DG) : Free Stock Analysis Report
Costco Wholesale Corporation (COST) : Free Stock Analysis Report
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