Investors interested in stocks from the Retail - Restaurants sector have probably already heard of Yum China Holdings (YUMC) and Chipotle Mexican Grill (CMG). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive 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.
Yum China Holdings and Chipotle Mexican Grill are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. Investors should feel comfortable knowing that YUMC likely has seen a stronger improvement to its earnings outlook than CMG has recently. 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.
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.
YUMC currently has a forward P/E ratio of 15.61, while CMG has a forward P/E of 30.29. We also note that YUMC has a PEG ratio of 1.28. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. CMG currently has a PEG ratio of 2.24.
Another notable valuation metric for YUMC is its P/B ratio of 2.64. 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, CMG has a P/B of 18.24.
Based on these metrics and many more, YUMC holds a Value grade of B, while CMG has a Value grade of D.
YUMC sticks out from CMG in both our Zacks Rank and Style Scores models, so value investors will likely feel that YUMC is the better option right now.
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This article originally published on Zacks Investment Research (zacks.com).