EAT or CMG: Which Is the Better Value Stock Right Now?

Investors looking for stocks in the Retail - Restaurants sector might want to consider either Brinker International (EAT) or 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.

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 Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.

Currently, Brinker International has a Zacks Rank of #2 (Buy), while Chipotle Mexican Grill has a Zacks Rank of #3 (Hold). This means that EAT's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. However, value investors will care about much more than just this.

Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their 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.

EAT currently has a forward P/E ratio of 15.63, while CMG has a forward P/E of 30.05. We also note that EAT has a PEG ratio of 1.20. 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. CMG currently has a PEG ratio of 2.19.

Another notable valuation metric for EAT is its P/B ratio of 17.75. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, CMG has a P/B of 18.11.

These are just a few of the metrics contributing to EAT's Value grade of B and CMG's Value grade of D.

EAT has seen stronger estimate revision activity and sports more attractive valuation metrics than CMG, so it seems like value investors will conclude that EAT is the superior option right now.

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This article originally published on Zacks Investment Research (zacks.com).

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