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 stocks is more attractive to value investors? We'll need to take a closer look to find out.
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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Right now, Yum China Holdings is sporting 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 Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
YUMC currently has a forward P/E ratio of 20.85, while CMG has a forward P/E of 55.76. We also note that YUMC has a PEG ratio of 1.60. 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 2.49.
Another notable valuation metric for YUMC is its P/B ratio of 2.78. 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 23.33.
These metrics, and several others, help YUMC earn a Value grade of B, while CMG has been given a Value grade of F.
YUMC sticks out from CMG in both our Zacks Rank and Style Scores models, so value investors will likely feel that YUMC is the better option right now.
Zacks Naming Top 10 Stocks for 2025
Want to be tipped off early to our 10 top picks for the entirety of 2025?
History suggests their performance could be sensational.
From 2012 (when our Director of Research Sheraz Mian assumed responsibility for the portfolio) through November, 2024, the Zacks Top 10 Stocks gained +2,112.6%, more than QUADRUPLING the S&P 500’s +475.6%. Now Sheraz is combing through 4,400 companies to handpick the best 10 tickers to buy and hold in 2025. Don’t miss your chance to get in on these stocks when they’re released on January 2.
Be First to New Top 10 Stocks >>Yum China (YUMC) : Free Stock Analysis Report
Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
