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

Zacks

Investors looking for stocks in the Retail – Discount Stores sector might want to consider either Big Lots (BIG) or Costco (COST). 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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.

Right now, Big Lots is sporting a Zacks Rank of #2 (Buy), while Costco has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that BIG has an improving earnings outlook. But this is just one factor that value investors are interested in.

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.

BIG currently has a forward P/E ratio of 11.36, while COST has a forward P/E of 35.33. We also note that BIG has a PEG ratio of 0.95. 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. COST currently has a PEG ratio of 4.21.

Another notable valuation metric for BIG is its P/B ratio of 1.51. 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, COST has a P/B of 7.84.

These are just a few of the metrics contributing to BIG’s Value grade of A and COST’s Value grade of C.

BIG is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that BIG is likely the superior value option right now.


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Zacks Investment Research
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