Macy’s Inc. shares have left the S&P 500 in the dust in 2021, gaining 227.6 percent year-to-date.
Earnings
A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value.Growth
Looking ahead to the next four quarters, the S&P 500’s forward PE ratio looks much more reasonable at just 21.4. Macy’s forward earnings multiple of 9.1 is less than half the S&P 500’s, making Macy’s look extremely undervalued.Macy’s forward PE ratio is also less than a third of the average multiple of its consumer discretionary peers, which are averaging a 32.5 forward earnings multiple.
Yet when it comes to evaluating a stock, earnings aren’t everything.
The growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process. The S&P 500’s overall PEG is currently about 1.0; Macy’s PEG is 0.91, suggesting Macy’s is still undervalued after accounting for its growth.
Price-to-sales (PS) ratio is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is currently 3.2, well above its long-term average of 1.63. Macy’s PS ratio is 0.44, only a fraction of the S&P 500 average as a whole. Macy’s PS ratio is also up 2.8 percent over the past five years, suggesting the stock is priced at the high end of its historical valuation range.
