Investors interested in stocks from the Consumer Products - Staples sector have probably already heard of Franchise Group (FRG) and Grocery Outlet Holding Corp. (GO). But which of these two companies is the best option for those looking for undervalued stocks? 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 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.
Currently, Franchise Group has a Zacks Rank of #2 (Buy), while Grocery Outlet Holding Corp. has a Zacks Rank of #5 (Strong Sell). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that FRG is likely seeing its earnings outlook improve to a greater extent. But this is just one piece of the puzzle for value investors.
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.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
FRG currently has a forward P/E ratio of 10.44, while GO has a forward P/E of 35.04. We also note that FRG has a PEG ratio of 0.70. 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. GO currently has a PEG ratio of 4.94.
Another notable valuation metric for FRG is its P/B ratio of 3.12. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, GO has a P/B of 3.41.
These are just a few of the metrics contributing to FRG's Value grade of A and GO's Value grade of C.
FRG stands above GO thanks to its solid earnings outlook, and based on these valuation figures, we also feel that FRG is the superior value option right now.
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Franchise Group, Inc. (FRG) : Free Stock Analysis Report
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