Investors interested in stocks from the Retail - Restaurants sector have probably already heard of Cracker Barrel Old Country Store (CBRL) and Shake Shack (SHAK). But which of these two companies is the best option for those looking for undervalued stocks? 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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Cracker Barrel Old Country Store and Shake Shack are sporting Zacks Ranks of #1 (Strong Buy) and #2 (Buy), respectively, right now. Investors should feel comfortable knowing that CBRL likely has seen a stronger improvement to its earnings outlook than SHAK has recently. However, value investors will care about much more than just this.
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.
CBRL currently has a forward P/E ratio of 39.35, while SHAK has a forward P/E of 62.84. We also note that CBRL has a PEG ratio of 1.46. 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. SHAK currently has a PEG ratio of 7.78.
Another notable valuation metric for CBRL is its P/B ratio of 2.86. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, SHAK has a P/B of 5.32.
These are just a few of the metrics contributing to CBRL's Value grade of B and SHAK's Value grade of D.
CBRL is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that CBRL is likely the superior value option right now.
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Cracker Barrel Old Country Store, Inc. (CBRL): Free Stock Analysis Report
Shake Shack, Inc. (SHAK): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).