Investors looking for stocks in the Textile – Apparel sector might want to consider either Guess (GES) or Lululemon (LULU). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Currently, both Guess and Lululemon are holding 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 these stocks have improving earnings outlooks. However, value investors will care about much more than just this.
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 grades stocks based on a number of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
GES currently has a forward P/E ratio of 24.84, while LULU has a forward P/E of 34.24. We also note that GES has a PEG ratio of 1.42. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. LULU currently has a PEG ratio of 2.60.
Another notable valuation metric for GES is its P/B ratio of 2.17. 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, LULU has a P/B of 8.96.
Based on these metrics and many more, GES holds a Value grade of A, while LULU has a Value grade of F.
GES and LULU are currently sporting an improving earnings outlook, which makes them stick out in our Zacks Rank model. However, based on the above valuation metrics, we feel that GES is likely the superior value option right now.
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