Investors looking for stocks in the Retail - Restaurants sector might want to consider either Yum China Holdings (YUMC) or Chipotle Mexican Grill (CMG). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
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 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 #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 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 20.57, while CMG has a forward P/E of 53.49. We also note that YUMC has a PEG ratio of 1.70. 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. CMG currently has a PEG ratio of 2.39.
Another notable valuation metric for YUMC is its P/B ratio of 2.72. 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, CMG has a P/B of 22.35.
Based on these metrics and many more, YUMC holds a Value grade of B, while CMG has a Value grade of F.
YUMC stands above CMG thanks to its solid earnings outlook, and based on these valuation figures, we also feel that YUMC is the superior value option right now.
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