Investors looking for stocks in the Retail - Restaurants sector might want to consider either Aramark (ARMK) or Dutch Bros (BROS). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Aramark has a Zacks Rank of #2 (Buy), while Dutch Bros has a Zacks Rank of #3 (Hold) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that ARMK has an improving earnings outlook. But this is only part of the picture for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether 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.
ARMK currently has a forward P/E ratio of 19.88, while BROS has a forward P/E of 41.99. We also note that ARMK has a PEG ratio of 0.79. 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. BROS currently has a PEG ratio of 1.30.
Another notable valuation metric for ARMK is its P/B ratio of 4.26. 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 7.36.
These metrics, and several others, help ARMK earn a Value grade of B, while BROS has been given a Value grade of D.
ARMK stands above BROS thanks to its solid earnings outlook, and based on these valuation figures, we also feel that ARMK is the superior value option right now.
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This article originally published on Zacks Investment Research (zacks.com).