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ROST vs. COST: Which Stock Is the Better Value Option?

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Investors interested in stocks from the Retail - Discount Stores sector have probably already heard of Ross Stores (ROST - Free Report) and Costco (COST - Free Report) . 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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.

Currently, both Ross Stores and Costco are holding a Zacks Rank of # 2 (Buy). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that both of these companies have improving earnings outlooks. But this is only part of the picture 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.

ROST currently has a forward P/E ratio of 24.09, while COST has a forward P/E of 52.59. We also note that ROST has a PEG ratio of 2.52. 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 5.64.

Another notable valuation metric for ROST is its P/B ratio of 9.69. 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, COST has a P/B of 17.35.

These are just a few of the metrics contributing to ROST's Value grade of B and COST's Value grade of C.

Both ROST and COST are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that ROST is the superior value option right now.


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