Investors with an interest in Retail - Restaurants stocks have likely encountered both Yum China Holdings (YUMC) and Dutch Bros (BROS). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Yum China Holdings and Dutch Bros are both sporting 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. However, value investors will care about much more than just this.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their current share price levels.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
YUMC currently has a forward P/E ratio of 16.71, while BROS has a forward P/E of 60.81. We also note that YUMC has a PEG ratio of 1.38. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. BROS currently has a PEG ratio of 1.42.
Another notable valuation metric for YUMC is its P/B ratio of 2.89. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, BROS has a P/B of 10.14.
These are just a few of the metrics contributing to YUMC's Value grade of B and BROS's Value grade of F.
Both YUMC and BROS are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that YUMC is the superior value option right now.
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Yum China (YUMC): Free Stock Analysis Report
Dutch Bros Inc. (BROS): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).