Investors interested in Retail - Restaurants stocks are likely familiar with BJ's Restaurants (BJRI) 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.
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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Right now, BJ's Restaurants is sporting a Zacks Rank of #2 (Buy), while Shake Shack 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 BJRI has an improving earnings outlook. 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.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
BJRI currently has a forward P/E ratio of 27.31, while SHAK has a forward P/E of 47.38. We also note that BJRI has a PEG ratio of 1.95. 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. SHAK currently has a PEG ratio of 2.44.
Another notable valuation metric for BJRI is its P/B ratio of 3.4. 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, SHAK has a P/B of 4.24.
These are just a few of the metrics contributing to BJRI's Value grade of B and SHAK's Value grade of D.
BJRI 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 BJRI is likely the superior value option right now.
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BJ's Restaurants, Inc. (BJRI): Free Stock Analysis Report
Shake Shack, Inc. (SHAK): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).