Investors interested in Gaming stocks are likely familiar with Churchill Downs (CHDN) and Red Rock Resorts (RRR). But which of these two companies is the best option for those looking for undervalued stocks? 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 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.
Right now, Churchill Downs is sporting a Zacks Rank of #2 (Buy), while Red Rock Resorts has a Zacks Rank of #5 (Strong Sell). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that CHDN has an improving earnings outlook. 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 highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
CHDN currently has a forward P/E ratio of 11.92, while RRR has a forward P/E of 35.48. We also note that CHDN has a PEG ratio of 0.58. 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. RRR currently has a PEG ratio of 4.12.
Another notable valuation metric for CHDN is its P/B ratio of 5.55. 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, RRR has a P/B of 24.77.
These metrics, and several others, help CHDN earn a Value grade of A, while RRR has been given a Value grade of D.
CHDN has seen stronger estimate revision activity and sports more attractive valuation metrics than RRR, so it seems like value investors will conclude that CHDN is the superior option right now.
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Churchill Downs, Incorporated (CHDN): Free Stock Analysis Report
Red Rock Resorts, Inc. (RRR): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).