Investors interested in Retail - Restaurants stocks are likely familiar with Yum China Holdings (YUMC) and 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.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. 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.
Yum China Holdings and Chipotle Mexican Grill are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that YUMC is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.
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.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
YUMC currently has a forward P/E ratio of 16.12, while CMG has a forward P/E of 29.26. We also note that YUMC has a PEG ratio of 1.25. 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 2.13.
Another notable valuation metric for YUMC is its P/B ratio of 2.74. 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 19.27.
These metrics, and several others, help YUMC earn a Value grade of B, while CMG has been given a Value grade of D.
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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