YUMC or CMG: Which Is the Better Value Stock Right Now?
Investors interested in stocks from the Retail - Restaurants sector have probably already heard of Yum China Holdings (YUMC) and Chipotle Mexican Grill (CMG). 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.
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.
Right now, Yum China Holdings is sporting a Zacks Rank of #2 (Buy), while Chipotle Mexican Grill has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that YUMC likely has seen a stronger improvement to its earnings outlook than CMG has recently. 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 14.05, while CMG has a forward P/E of 28.92. We also note that YUMC has a PEG ratio of 1.09. 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 2.03.
Another notable valuation metric for YUMC is its P/B ratio of 2.39. 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 19.06.
Based on these metrics and many more, YUMC holds a Value grade of A, while CMG has 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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This article originally published on Zacks Investment Research (zacks.com).
