Investors with an interest in Retail - Restaurants stocks have likely encountered both Yum China Holdings (YUMC) and Chipotle Mexican Grill (CMG). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, Yum China Holdings has a Zacks Rank of #2 (Buy), while Chipotle Mexican Grill has a Zacks Rank of #4 (Sell). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that YUMC is likely seeing its earnings outlook improve to a greater extent. But this is just one factor that value investors are interested in.
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 Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
YUMC currently has a forward P/E ratio of 17.10, while CMG has a forward P/E of 29.64. We also note that YUMC has a PEG ratio of 1.41. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. CMG currently has a PEG ratio of 2.07.
Another notable valuation metric for YUMC is its P/B ratio of 2.95. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, CMG has a P/B of 15.55.
These are just a few of the metrics contributing to YUMC's Value grade of B and CMG's Value grade of F.
YUMC 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 YUMC is likely the superior value option right now.
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Yum China (YUMC): Free Stock Analysis Report
Chipotle Mexican Grill, Inc. (CMG): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).