Investors interested in stocks from the Gaming sector have probably already heard of Churchill Downs (CHDN) and Red Rock Resorts (RRR). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great 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.
Churchill Downs and Red Rock Resorts are sporting Zacks Ranks of #2 (Buy) and #5 (Strong Sell), respectively, right now. Investors should feel comfortable knowing that CHDN likely has seen a stronger improvement to its earnings outlook than RRR has recently. But this is only part of the picture for value investors.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its 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.
CHDN currently has a forward P/E ratio of 11.72, while RRR has a forward P/E of 30.62. We also note that CHDN has a PEG ratio of 0.57. 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. RRR currently has a PEG ratio of 3.56.
Another notable valuation metric for CHDN is its P/B ratio of 5.45. 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, RRR has a P/B of 21.87.
These are just a few of the metrics contributing to CHDN's Value grade of A and RRR's Value grade of D.
CHDN stands above RRR thanks to its solid earnings outlook, and based on these valuation figures, we also feel that CHDN is the superior value 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).