DG Vs. ROST: Which Stock Should Value Investors Buy Now?

Investors interested in Retail - Discount Stores stocks are likely familiar with Dollar General (DG) and Ross Stores (NASDAQ:ROST). 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 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.

Both Dollar General and Ross Stores have a Zacks Rank of # 2 (Buy) right now. 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 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 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.

DG currently has a forward P/E ratio of 23.74, while ROST has a forward P/E of 24.92. We also note that DG has a PEG ratio of 2.33. 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. ROST currently has a PEG ratio of 2.37.

Another notable valuation metric for DG is its P/B ratio of 5.98. 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, ROST has a P/B of 12.31.

Based on these metrics and many more, DG holds a Value grade of B, while ROST has a Value grade of C.

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