Investors interested in Retail - Restaurants stocks are likely familiar with Yum China Holdings (YUMC) and Chipotle Mexican Grill (CMG). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive 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.
Currently, Yum China Holdings has a Zacks Rank of #2 (Buy), while Chipotle Mexican Grill has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that YUMC has an improving earnings outlook. But this is just one piece of the puzzle for value investors.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their 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 20.03, while CMG has a forward P/E of 55.58. We also note that YUMC has a PEG ratio of 1.66. 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 2.64.
Another notable valuation metric for YUMC is its P/B ratio of 2.69. 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, CMG has a P/B of 22.36.
These are just a few of the metrics contributing to YUMC's Value grade of B and CMG's Value grade of F.
YUMC has seen stronger estimate revision activity and sports more attractive valuation metrics than CMG, so it seems like value investors will conclude that YUMC is the superior option right now.
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