YUMC vs. SHAK: Which Stock Is the Better Value Option?
Investors interested in stocks from the Retail - Restaurants sector have probably already heard of Yum China Holdings (YUMC) and Shake Shack (SHAK). 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 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 Shake Shack 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. However, value investors will care about much more than just this.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether 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 24.67, while SHAK has a forward P/E of 114.75. We also note that YUMC has a PEG ratio of 2.63. 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. SHAK currently has a PEG ratio of 5.10.
Another notable valuation metric for YUMC is its P/B ratio of 5.10. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, SHAK has a P/B of 8.63.
Based on these metrics and many more, YUMC holds a Value grade of B, while SHAK has a Value grade of F.
YUMC has seen stronger estimate revision activity and sports more attractive valuation metrics than SHAK, so it seems like value investors will conclude that YUMC is the superior option right now.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.