Should Value Investors Buy The Kroger Co. (KR) Stock?
Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.
Considering these trends, value investing is clearly one of the most preferred ways to find strong stocks in any type of market. Value investors use fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.
On top of the Zacks Rank, investors can also look at our innovative Style Scores system to find stocks with specific traits. For example, value investors will want to focus on the "Value" category. Stocks with high Zacks Ranks and "A" grades for Value will be some of the highest-quality value stocks on the market today.
One stock to keep an eye on is The Kroger Co. (KR). KR is currently sporting a Zacks Rank of #2 (Buy), as well as a Value grade of A. The stock is trading with a P/E ratio of 10.64, which compares to its industry's average of 20.60. Over the last 12 months, KR's Forward P/E has been as high as 16.49 and as low as 10.15, with a median of 11.63.
Investors will also notice that KR has a PEG ratio of 1.78. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. KR's industry currently sports an average PEG of 3.68. KR's PEG has been as high as 1.83 and as low as 0.87, with a median of 1.25, all within the past year.
Another notable valuation metric for KR is its P/B ratio of 3.41. 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. This stock's P/B looks attractive against its industry's average P/B of 3.92. KR's P/B has been as high as 4.81 and as low as 3.08, with a median of 3.49, over the past year.
Value investors also frequently use the P/S ratio. This metric is found by dividing a stock's price with the company's revenue. This is a prefered metric because revenue can't really be manipulated, so sales are often a truer performance indicator. KR has a P/S ratio of 0.23. This compares to its industry's average P/S of 0.26.
Finally, we should also recognize that KR has a P/CF ratio of 5.78. This metric takes into account a company's operating cash flow and can be used to find stocks that are undervalued based on their solid cash outlook. This company's current P/CF looks solid when compared to its industry's average P/CF of 16.27. Over the past 52 weeks, KR's P/CF has been as high as 9.01 and as low as 5.14, with a median of 5.86.
Tesco (TSCDY) may be another strong Retail - Supermarkets stock to add to your shortlist. TSCDY is a # 2 (Buy) stock with a Value grade of A.
Tesco is currently trading with a Forward P/E ratio of 12.91 while its PEG ratio sits at 2.72. Both of the company's metrics compare favorably to its industry's average P/E of 20.60 and average PEG ratio of 3.68.
Over the last 12 months, TSCDY's P/E has been as high as 13.14, as low as 9.09, with a median of 11.58, and its PEG ratio has been as high as 4.15, as low as 0.32, with a median of 3.34.
Tesco also has a P/B ratio of 1.39 compared to its industry's price-to-book ratio of 3.92. Over the past year, its P/B ratio has been as high as 1.39, as low as 0.99, with a median of 1.20.
Value investors will likely look at more than just these metrics, but the above data helps show that The Kroger Co. and Tesco are likely undervalued currently. And when considering the strength of its earnings outlook, KR and TSCDY sticks out as one of the market's strongest value stocks.
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