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TPX vs. RH: Which Stock Should Value Investors Buy Now?

Zacks Equity Research
·2 min read

Investors interested in Retail - Home Furnishings stocks are likely familiar with Tempur Sealy (TPX) and Restoration Hardware (RH). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.

We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Tempur Sealy and Restoration Hardware are both sporting a Zacks Rank of # 2 (Buy) right now. 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. But this is only part of the picture 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.

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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.

TPX currently has a forward P/E ratio of 15.97, while RH has a forward P/E of 28.39. We also note that TPX has a PEG ratio of 0.89. 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. RH currently has a PEG ratio of 1.92.

Another notable valuation metric for TPX is its P/B ratio of 15.94. 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, RH has a P/B of 27.50.

Based on these metrics and many more, TPX holds a Value grade of B, while RH has a Value grade of D.

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


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